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The Permanent Effect of Domestic Income on the Growth of Governments: The Case of Italy

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  • Legrenzi, Gabriella

Abstract

We empirically model the growth of the Italian government on a long historical dataset, starting from the country's unification. Our findings point to the existence of a long-run equilibrium relationship between gross domestic product and government spending, that is robust to different specifications of the government growth equation and to different levels of government. The estimated income-elasticities of government spending present a clear pattern of growth and decline, suggesting the existence of possible cycles in the growth of government. The estimated speed of adjustment of government spending is rather slow, especially in the case of local expenditure, pointing to administrative rigidities.

Suggested Citation

  • Legrenzi, Gabriella, 2008. "The Permanent Effect of Domestic Income on the Growth of Governments: The Case of Italy," Public Finance = Finances publiques, , vol. 55(1-2), pages 22-47.
    • Handle: RePEc:pfi:pubfin:v:55:y:2008:i:1-2:p:22-47
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