Abstract
By the BARS algorithm, we econometrically assess, for Italy, for the 1861–2008 years (divided in the two monarchic and republican periods and in seven subperiods)- the Wagner empirical law of growth of public expenditure G and the Wagner optimal public expenditure growth G*, defined as GDP maximisation. Our results show the presence of a non-linear relationship between G and G* with an inverted “U-shape” curve. In the monarchic period until 1914 G < G*. Then from 1919 to 1939 (the non-democratic period) G > G*. In the centre and centre left sub-period of the Republican epoch from 1946 to 1972 again G > G*. In the subsequent unstable period 1973–1992 and in the euro subperiod too G > G*, in spite of the fiscal compact. The two Wagner laws, as emerging in the Italian case, may be interpreted by Montemartini’ paradigm of the government as a political enterprise, which employs its coercive power to distribute the cost of the collective goods approved by its majority (but not necessarily fitting their true preferences) on the entire community. Another explanation may lie in Wagner principle about the natural tendency of public bureaucracy to expansion. The European rules as well as the Italian policies, in the application of the fiscal compact, should more clearly and firmly distinguish the reductions of public spending and the increases of taxes as instruments of reduction of public deficits and debts.
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Notes
- 1.
See G. Chaloupek (2018), Wagner’s law, Money and the Theory of Financial Crisis: Adolph Wagner’s Early Viennese Publications, p. 77ff in the present volume.
- 2.
See G. Chaloupek (2018)
- 3.
See G. Chaloupek (2018)
- 4.
See G. Chaloupek (2018)
- 5.
See A. Nentjes (2018), Adolph Wagner Revisited: Is Redistribution of Income and Wealth a Public Good? p. 107ff in the present volume.
- 6.
See A. Nentjes (2018), with the application to Netherland and the paradox that the true preferences of the majority may not be reflected in the over extensive redistributive policies actually adopted by the state under the majority rule principle.
- 7.
Part I, 3ed ed. Leipzig 1883 p.4 ss., as presented in the English language, in Musgrave and Peacock (1958), Classics in the theory of public finance, London. New York, MacMillan pp.1–8.
- 8.
Wagner writes “The nature and extent of state activities must be directed toward the fulfilment of objectives which are recognized as proper and determined in accordance with the interest of the people. In this respect, the State and hence also the fiscal economy are outside the competitive market”. See See Wagner (1883) in Musgrave and Peacock (1958) p.5 too.
- 9.
“The life of the state is presumed to have unlimited duration. If in the course of history, on state vanishes, it successor takes it places. Therefore, the State can embark on transactions from which individual business cannot provide by the very limitation of its life. One point is important for public debt policy strictly speaking only the State can and may contract perpetual debt” See Wagner (1883) in Musgrave and Peacock (1958) p.5.
- 10.
- 11.
- 12.
See 2.1. below.
- 13.
Dalena & Magazzino (2012a).
- 14.
Both the right and the left wing were dominate by elites because of the restricted suffrage and mostly the political class was composed of “liberals” of the right, the center or of the left. See Forte (2011) pp.5–50.
- 15.
Se Forte (2011)
- 16.
Forte (2011) Ch. VI pp. 171–174.
- 17.
Actually, in this period there have been contrasting tax reforms by different political majorities.
- 18.
The purpose of this paper did not allow us to examine econometrically another issue, that of the allocation of public expenditure to productive or non-productive expenditures, within the frame of the aggregate size of the share of public expenditure on gross national product. On the composition of expenditure see (Forte and Magazzino 2014; Magazzino 2012). Reallocating the public resources from an unproductive to more productive items (as R&D or public investment), could increase long-run economic growth.
- 19.
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Forte, F., Magazzino, C. (2018). Wagner’s Law, Government Size and Economic Growth: An Empirical Test and Theoretical Explanations for Italy 1861–2008. In: Backhaus, J., Chaloupek, G., Frambach, H. (eds) Gustav von Schmoller and Adolph Wagner . The European Heritage in Economics and the Social Sciences, vol 21. Springer, Cham. https://doi.org/10.1007/978-3-319-78993-4_10
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