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An attempt to restore Wagner’s law of increasing state activity

Author

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  • László Kónya

    (RMIT University)

  • Bekzod Abdullaev

    (RMIT University)

Abstract

According to Adolph Wagner’s “Law of Increasing State Activity” economic development is accompanied by an increasing role of state activities and functions. Unfortunately, this view has never been stated explicitly by Wagner and the lack of a precise mathematical formulation led researchers to use various and sometimes incomparable specifications. Moreover, in previous empirical studies state activity was almost always replaced by public spending, and hence Wagner’s Law was effectively narrowed down to the “Law of Increasing State Spending”. This paper is an attempt to restore Wagner’s Law. Contrary to previous studies, it examines whether Wagner’s Law in its original form held in Australia in the 1901–2008 period by studying the relationship between real per capita income and a composite variable of state activity that takes both financial and legislative activities of the federal government into account. Although this composite variable still falls short of capturing all levels and sorts of state or government activities, it is a far more comprehensive measure than any of its components used individually in earlier studies. The results based on this composite measure provide no empirical evidence in favour of Wagner’s Law in Australia.

Suggested Citation

  • László Kónya & Bekzod Abdullaev, 2018. "An attempt to restore Wagner’s law of increasing state activity," Empirical Economics, Springer, vol. 55(4), pages 1569-1583, December.
    • Handle: RePEc:spr:empeco:v:55:y:2018:i:4:d:10.1007_s00181-017-1339-x
    DOI: 10.1007/s00181-017-1339-x
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    More about this item

    Keywords

    Wagner’s law; State activity; Economic development; Australia;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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