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Wagner’s law versus displacement effect

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  • Yoshito Funashima

Abstract

The public sector has grown dramatically over the past few centuries in many developed countries. In this article, we use wavelet methods to distinguish between two leading explanations for this growth – Wagner’s law and the displacement effect. In doing so, we use the long-term data of 10 OECD countries for a maximum time span of 1800–2009. We find that the validity of Wagner’s law is likely to vary strongly over time for each country. A roughly similar feature in most of the countries is that the law is less valid in the earliest stage of economic development as well as in the advanced stages, with the validity tending to follow an inverted U-shaped pattern with economic development. Further, our results indicate that the long-run growth of government size cannot be adequately explained by Wagner’s law. On the other hand, the displacement effect appears to account for the bulk of the growth in most of the countries.

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  • Yoshito Funashima, 2017. "Wagner’s law versus displacement effect," Applied Economics, Taylor & Francis Journals, vol. 49(7), pages 619-634, February.
  • Handle: RePEc:taf:applec:v:49:y:2017:i:7:p:619-634
    DOI: 10.1080/00036846.2016.1203063
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    Cited by:

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    3. Nupur Nirola & Sohini Sahu, 2020. "Revisiting the Wagner’s law for Indian States using second generation panel cointegration," Economic Change and Restructuring, Springer, vol. 53(2), pages 241-263, May.
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    5. Livio Di Matteo & Fraser Summerfield, 2018. "The Shifting Scully Curve: International Evidence from 1870 to 2013," Working Paper series 18-01, Rimini Centre for Economic Analysis.

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