Skip to main content

Advertisement

SpringerLink
Log in

A distributional theory of government growth

  • Original Article
  • Published:
Public Choice Aims and scope Submit manuscript

Abstract

This article presents a closed form solution for time-consistent taxation and public spending in a dynamic game between government and median voter. Extending Meltzer and Richard’s static analysis of government size the article offers a theory of growth of government. At low stages of economic development the median voter, identified as a relatively poor worker, prefers to have no or only small redistributive taxation in order to foster savings. Through this channel he expects improvements of his labor productivity and wage. At higher stages of development, however, when capital is relatively abundant and prospects of further labor productivity gains through capital accumulation are smaller, the incentive to tax and redistribute income rises. Yet, in line with previous work on growth and infrastructure spending the median voter prefers a constant share of productive public spending at all times. Hence, government growth is solely driven by an expanding welfare state.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Alesina, A., & Rodrik, D. (1994). Distributive politics and economic growth. Quarterly Journal of Economics, 109, 465–449.

    Article  Google Scholar 

  • Barro, R. J. (1990). Government Spending in a simple model of endogenous growth. Journal of Political Economy, 98, S.103–S.125.

    Article  Google Scholar 

  • Barro, R. J., & Sala-i-Martin, X. (1992). Public finance in models of economic growth. Review of Economic Studies, 59, 645–661.

    Article  Google Scholar 

  • Benabou, R. (1996). Inequality and growth. NBER Working Paper 5658.

  • Benabou, R. (2000). Unequal societies: Income distribution and the social contract. American Economic Review, 90, 96–129.

    Article  Google Scholar 

  • Bertola, G. (1993). Factor shares and savings in endogenous growth. American Economic Review, 83, 1184–1198.

    Google Scholar 

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

    Article  Google Scholar 

  • Borcherding, T. E., Ferris, J. S., & Garzoni, A. (2004) Growth and the real size of government since 1970. In J. Backhaus & R. E. Wagner (Eds.), The Kluwer handbook of public finance, Hingham, MA: Kluwer Academic Press.

  • Boix, C. (2001). Democracy, development and the public sector. American Journal of Political Science, 45, 1–17.

    Article  Google Scholar 

  • Brunner, M., & Strulik, H. (2002). Solution of perfect foresight saddlepoint problems: A simple method and applications. Journal of Economic Dynamics and Control, 26, 737–753.

    Article  Google Scholar 

  • Caselli, F., Esquivel, G., & Lefort, F. (1996). Reopening the convergence debate: A new look at cross-country growth empirics. Journal of Economic Growth, 1, 363–389.

    Article  Google Scholar 

  • Chamley, C. (1986). Optimal taxation of capital income in general equilibrium with infinite lives. Econometrica, 54, 607–622.

    Article  Google Scholar 

  • Dalgaard, C.-J., Hansen, H., & Larsen, T. (2003). Income skewness, redistribution and growth: A reconciliation. EPRU Working Paper 2003-14, University of Copenhagen.

  • Deininger, K., & Squire, L. (1998). New ways of looking at old issues: Inequality and growth. Journal of Development Economics, 57, 259–287.

    Article  Google Scholar 

  • Grossmann, V. (2003). Income inequality, voting over the size of public consumption, and growth. European Journal of Political Economy, 19, 265–287.

    Article  Google Scholar 

  • Hassler, J., Rodriguez Mora, J. V., Storesletten, K., & Zilibotti, F. (2003). The survival of the welfare state. American Economic Review, 93, 87–112.

    Article  Google Scholar 

  • Husted, T. A., & Kenny, L. W. (1997). The effect of the expansion of the voting franchise on the size of government. Journal of Political Economy, 105, 54–82.

    Article  Google Scholar 

  • Islam, N. (1995). Growth empirics: A panel data approach, Quarterly Jounal of Economics, 110, 1127–1170.

    Article  Google Scholar 

  • Judd, K. L. (1985). Redistributive taxation in a simple perfect foresight model. Journal of Public Economics, 28, 59–83.

    Article  Google Scholar 

  • Kemp, M. C., Long, N. V., & Shimomura, K. (1993). Cyclical and noncyclical redistributive taxation. International Economic Review, 34, 415–429.

    Article  Google Scholar 

  • Krusell, P., Quadrini, V., & Ríos-Rull, J.-V. (1997) Politico-economic equilibrium and economic growth. Journal of Economic Dynamics and Control, 21, 243–272.

    Article  Google Scholar 

  • Krusell, P. (2002). Time-consistent redistribution. European Economic Review, 46, 755–769.

    Article  Google Scholar 

  • Lansing, K. J. (1999). Optimal redistributive capital taxation in a neoclassical growth model. Journal of Public Economics, 73, 423–453.

    Article  Google Scholar 

  • Li, H., Squire, L., & Zou, H. (1998). Explaining international and intertemporal variations in income inequality. Economic Journal, 108, 26–43.

    Article  Google Scholar 

  • Meltzer, A. H., & Richard, S. F. (1981). A rational theory of the size of government. Journal of Political Economy, 89, 914–997.

    Article  Google Scholar 

  • Meltzer, A. H., & Richard, S. F. (1983). Tests of a rational theory of the size of government. Public Choice, 41, 403–418.

    Article  Google Scholar 

  • Milanovic, B. (2000). The median-voter hypothesis, income inequality and income redistribution: An empirical test with the required data. European Journal of Political Economy, 16, 367–410.

    Article  Google Scholar 

  • Perotti, R. (1996). Growth, income distribution and democracy: What the data say. Journal of Economic Growth, 1, 149–187.

    Article  Google Scholar 

  • Persson, T., & Tabellini, G. (1994). Is inequality harmful for growth? American Economic Review, 84, 600–621.

    Google Scholar 

  • Roberts, K. W. S. (1977). Voting over income tax schedules. Journal of Public Economics, 8, 329–340.

    Article  Google Scholar 

  • Romer, T. (1975). Individual welfare, majority voting and the properties of a linear income tax. Journal of Public Economics, 4, 163–185.

    Article  Google Scholar 

  • Saint-Paul, G., & Verdier, T. (1996). Inequality, redistribution and growth: A challenge to the conventional political approach. European Economic Review, 40, 719–728.

    Article  Google Scholar 

  • Sinn, H.-W. (2000). Germany’s economic unification: An assessment after ten years. Review of International Economics, 10, 113–128.

    Article  Google Scholar 

  • Strulik, H. (2002). Fiscal policy reforms in a global economy. International Tax and Public Finance, 9, 71–89.

    Article  Google Scholar 

  • Tanzi, V., & Schuknecht, L. (2000). Public spending in the 20th century: A global perspective. Cambridge: Cambridge University Press.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, University of Hannover, Koenigsworther Platz 1, 30167, Hannover, Germany

    Holger Strulik

Authors
  1. Holger Strulik
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Holger Strulik.

Additional information

JEL Classifications: E6, H21, O40

Rights and permissions

Reprints and permissions

About this article

Cite this article

Strulik, H. A distributional theory of government growth. Public Choice 132, 305–318 (2007). https://doi.org/10.1007/s11127-007-9153-1

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11127-007-9153-1

Keywords

Search

Navigation