Skip to main content

The cost disease and government growth: Qualifications to Baumol

Abstract

Changes in real world wage movements across sectors account for about a third of the rise in the cost of U.S. government services between 1959 and 1989, while relatively slower productivity in the public sector accounts for the remaining two-thirds. Even though it is slower, however, the productivity record still is positive even in the labor intensive government sector. Consequently Baumol argues that the public's likely future objection to necessary increases in the share of expenditures over the next 50 years will betray a fiscal illusion unless policymakers take pains to dissolve it. But slower productivity may be equally due to the structural organization. Removing public monopolies, reducing bureaucracies, and undertaking privatization in education for example, are other policy options that could radically change the productivity record. Meanwhile in his recent calculations of dramatic government expenditure increases expected in the next half century, Baumol omits reference to the marginal welfare cost of public funds, which on our estimates, will increase at least ten times to reach 1.71 by the year 2040.

This is a preview of subscription content, access via your institution.

References

  1. Baumol, W.J. (1993). Health care, education and the cost disease: A looming crisis for public choice. Public Choice 77: 17–28.

    Google Scholar 

  2. Berry, W.D. and Lowery, D. (1984). The Growing Cost of Government: A Test of Two Explanations, Social Science Quarterly 65: 735–749.

    Google Scholar 

  3. Borcherding, T.E. (1985). The causes of government expenditure growth: A survey of the U.S. evidence. Journal of Public Economics 28: 359–382.

    Google Scholar 

  4. Browning, E.K. (1976). The Marginal Cost of Public Funds, Journal of Political Economy Vol 84 No 2: 283–298.

    Google Scholar 

  5. Browning, E.K. (1987). On the Marginal Welfare Cost of Taxation, American Economic Review 1: 11–23.

    Google Scholar 

  6. Chubb, J.E. and Moe, T.M. (1991). Politics, Markets, and American Schools, Washington D.C., The Brookings Institution.

    Google Scholar 

  7. Eberts, Randall W. and Stone, J.A. (1986). Teacher unions and the cost of public education, Economic Inquiry 4(24): Vol XXIV, No 4.

    Google Scholar 

  8. Ferris, J.S., and West, E.G. (1993). Changes in the Real Size of Government, U.S. Experience 1948–1989, Carleton Economic Working Papers.

  9. Kau, J.B. and Rubin, P.H. (1981). The Size of Government, Public Choice 37: 261–274.

    Google Scholar 

  10. Kenny, Lawrence W. and Schmidt, A.B. (1994). The Decline in the Number of School Districts in the U.S.: 1950–1980, Public Choice Vol 29, Nos 1–2.

  11. Newhouse, J.P. (1971). Toward a theory of nonprofit institutions: An economic model of a hospital, American Economic Review 60: 64–74.

    Google Scholar 

  12. Peltzman, S. (1980). The Growth of Government, Journal of Law and Economics 23(2): 209–88.

    Google Scholar 

  13. Spann, R.M. (1977). The Macroeconomics of Unbalanced Growth and the Expanding Public Sector: some simple tests of a model of government growth, Journal of Public Economics 8: 397–404.

    Google Scholar 

  14. Usher, D. (1986). Tax Evasion and the Marginal Cost of Public Funds, Economic Inquiry 24: 563–586.

    Google Scholar 

  15. West, E.G. (1991), Secular Cost Changes and the Size of Government, Journal of Public Economics 45: 363–381.

    Google Scholar 

Download references

Author information

Affiliations

Authors

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Ferris, J.S., West, E.G. The cost disease and government growth: Qualifications to Baumol. Public Choice 89, 35–52 (1996). https://doi.org/10.1007/BF00114277

Download citation

Keywords

  • Government Expenditure
  • Policy Option
  • Government Service
  • Government Growth
  • Government Sector