Explaining the phenomenon of the growth of government expenditure has always been a wide field in the science of Public Finance. The aim of those theories is not only to explain government growth but also to find solutions in order to distribute public expenses more efficiently and to derive the “optimal” size of the government, finally. Before using these models and theories as a tool and vehicle one has to ask whether those theories are applicable in reality at all, because each theory has shortcomings and deficits which might lead to incorrect results and wrong decisions. The purpose of this paper is to reveal and discuss the most important criticism and to show that there does not exist a perfect theory which might explain government growth.
Table of Contents
- Introduction
- Topic and purpose of the paper
- Structure
- Economic models and theories
- General criticism of economic models and theories
- Characteristics of a "good" theory
- Criticism of theories explaining government expenditure growth
- Wagner's "law"
- Musgrave's hypotheses
- Peacock and Wiseman's displacement effect
- Meltzer and Richard's median voter hypothesis
- Baumol's model of unbalanced growth
- Brown and Jackson's microeconomic model
- The role of bureaucrats and interest groups
- Summary and Conclusion
Objectives and Key Themes
This paper critically appraises existing theories of government expenditure growth. It aims to identify the strengths and weaknesses of prominent models, highlighting their limitations and the challenges in applying them to real-world scenarios. The paper does not seek to offer a definitive explanation for government growth but rather to expose the complexities and inherent shortcomings of existing theoretical frameworks.
- Critique of economic models and their applicability to government expenditure.
- Analysis of Wagner's Law and its limitations.
- Evaluation of Musgrave's hypotheses on government expenditure and development stages.
- Examination of the Peacock and Wiseman displacement effect.
- Discussion of the role of various factors influencing government spending.
Chapter Summaries
Introduction: This introductory chapter sets the stage for a critical examination of theories explaining government expenditure growth. It establishes the paper's objective—to analyze the shortcomings of existing models and theories—and highlights the inherent difficulties in accurately predicting and managing government spending. The chapter outlines the structure of the paper, previewing the critical analysis of various theories in subsequent chapters.
Economic models and theories: This chapter delves into the general limitations of economic models and theories when applied to the complexities of government expenditure. It highlights the simplifying assumptions inherent in model building, emphasizing the potential discrepancies between theoretical predictions and real-world economic conditions. The chapter also defines characteristics of a “good” theory, emphasizing internal consistency, realistic assumptions, and empirical validity. This framework lays the groundwork for the subsequent critical analysis of specific theories of government expenditure growth.
Criticism of theories explaining government expenditure growth: This chapter presents a detailed critique of several prominent theories aiming to explain the growth of government expenditure. It begins with an in-depth analysis of Wagner's Law, exposing its limitations related to its historical context, its normative biases, its exclusion of war-related expenses, and its simplified view of the state's role. Subsequent sections critically examine Musgrave's hypotheses, focusing on the ambiguity of later development stages and the challenges of applying a singular stage-of-development framework to diverse economies. The chapter also thoroughly critiques the Peacock and Wiseman displacement effect, analyzing the inconclusive empirical evidence, its limited scope in explaining short-term fluctuations, and the vagueness of its central concept: the "tolerable burden of taxation."
Keywords
Government expenditure growth, economic models, Wagner's Law, Musgrave's hypotheses, Peacock and Wiseman displacement effect, public finance, theoretical limitations, empirical evidence, critical appraisal, government spending, economic development.
Frequently Asked Questions about the Paper: A Critical Appraisal of Theories Explaining Government Expenditure Growth
What is the overall purpose of this paper?
This paper provides a critical analysis of existing theories that attempt to explain the growth of government expenditure. It aims to identify the strengths and weaknesses of prominent models, highlighting their limitations and the challenges in applying them to real-world scenarios. The paper does not offer a definitive explanation but rather exposes the complexities and shortcomings of current theoretical frameworks.
What theories of government expenditure growth are discussed?
The paper critically examines several key theories, including Wagner's Law, Musgrave's hypotheses, the Peacock and Wiseman displacement effect, Meltzer and Richard's median voter hypothesis, Baumol's model of unbalanced growth, and Brown and Jackson's microeconomic model. It also discusses the role of bureaucrats and interest groups in influencing government spending.
What is the structure of the paper?
The paper is structured into an introduction, a section on economic models and theories, a section dedicated to a critical appraisal of various theories explaining government expenditure growth, and a concluding summary. The introduction sets the objectives and outlines the paper's structure. The second section discusses the general limitations of economic models. The third section provides a detailed critique of specific theories. The final section summarizes the key findings.
What are the key criticisms of the theories discussed?
The paper critiques each theory by highlighting its limitations and weaknesses. For example, Wagner's Law is criticized for its historical context, normative biases, exclusion of war-related expenses, and simplified view of the state's role. Musgrave's hypotheses are criticized for ambiguity in later development stages and the difficulty of applying a single framework to diverse economies. The Peacock and Wiseman displacement effect is critiqued for inconclusive empirical evidence and limited scope in explaining short-term fluctuations. The analysis also considers the role of simplifying assumptions in model building and the discrepancies between theoretical predictions and real-world conditions.
What are the key characteristics of a "good" economic theory according to this paper?
The paper defines a "good" theory as one that possesses internal consistency, realistic assumptions, and empirical validity. It emphasizes the importance of aligning theoretical predictions with real-world observations.
What is the conclusion of the paper?
The paper concludes by summarizing the critical analysis of the various theories, highlighting the inherent complexities and challenges in explaining government expenditure growth. It emphasizes the limitations of existing theoretical frameworks and the need for further research to develop more robust and realistic models.
What are the keywords associated with this paper?
Government expenditure growth, economic models, Wagner's Law, Musgrave's hypotheses, Peacock and Wiseman displacement effect, public finance, theoretical limitations, empirical evidence, critical appraisal, government spending, economic development.
- Arbeit zitieren
- Eckhard Scharmer (Autor:in), 2002, A critical appraisal of the theories of government expenditure growth, München, GRIN Verlag, https://www.grin.com/document/16172
