Is There a Fundamental Law of Public Expenditure Growth?

Abstract

There is an important aspect of the growth of public spending that has not attracted the attention that it deserves and that may be an important element of an exit strategy based on reducing public spending over the medium and long run. It is an aspect connected with what could be characterized as a “fundamental law of public expenditure growth over long periods of time.” It is a law, or at least a consistent trend, that has attracted little formal attention, even though it seems to have contributed much to the long-run growth of public spending in many countries, after the original welfare state programs were created in distant decades. The law focuses on the growth that took place in the public spending of many countries in the years after the introduction of the landmark social legislations, in Germany with Bismarck, in the US with Roosevelt and Johnson, in the UK with Beveridge, and in other countries with similar legislations. (See Tanzi, 2011a: ch. 5.) The law focuses on the fact that public spending growth often comes in small steps and not in big jumps.