The Displacement Effect in the Growth of Governments |
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Authors: | Legrenzi Gabriella |
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Affiliation: | 1. Department of Land Economy, Cambridge University, Cambridge, CB3 9EP, U.K
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Abstract: | We analyze the displacement effect within a multivariaterevenue-expenditure model of government growth, based on along historical dataset, for Italy. Our long-run analysisshows a permanent influence of domestic product on the growthof governments, supporting Wagner's law. The short-rundynamics are more complex and provide some evidence for thedisplacement effect, in terms of a lower resistance againsttax-financing of government spending in the post-war. Inaddition, government spending adjusts faster when deviationsfrom its equilibrium get larger. |
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