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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Legrenzi, G. The Displacement Effect in the Growth of Governments. Public Choice 120, 191–204 (2004). https://doi.org/10.1023/B:PUCH.0000035863.94599.97
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DOI: https://doi.org/10.1023/B:PUCH.0000035863.94599.97