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Human Capital Accumulation and Public Sector Growth

Author

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  • Mr. Vito Tanzi
  • Mr. Howell H Zee

Abstract

The present paper takes a fresh theoretical and empirical look into the relationship between Wagner’s law and economic development. It introduces human capital into a classic two-sector model of unbalanced growth. It shows that, as an economy develops, changes in the relative returns to human capital and unskilled labor, as a result of changes to their relative scarcities, could have a significant impact on the size of the government sector, depending in part also on the difference in relative factor intensities between outputs of the private and government sectors. This conjecture is broadly supported by empirical evidence based on a cross-section analysis of a large sample of developed and developing countries.

Suggested Citation

  • Mr. Vito Tanzi & Mr. Howell H Zee, 1995. "Human Capital Accumulation and Public Sector Growth," IMF Working Papers 1995/095, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1995/095
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=1841
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    Cited by:

    1. Akitoby, Bernardin & Clements, Benedict & Gupta, Sanjeev & Inchauste, Gabriela, 2006. "Public spending, voracity, and Wagner's law in developing countries," European Journal of Political Economy, Elsevier, vol. 22(4), pages 908-924, December.

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