GROWTH OF STATE GOVERNMENT EXPENDITURES - EMPIRICAL-EVIDENCE FROM THE UNITED-STATES

There exists a large number of studies that deal with Wagner's law of increasing state activity at the national level. Few studies have attempted to explain the growth of spending at the state level. The objective of this paper is to perform an empirical analysis of the government expenditures at the state level in the United States. The use of state data allows us to isolate cultural and institutional differences among nations which may have a bearing on the growth or government expenditures. From a basic general theoretical model, a workable empirical model is developed. This model enables us to estimate the short-run and long-run income elasticities of demand for government expenditures in each state. From these estimated elasticities we conclude that Wagner's law is confirmed.