Convergence in Government Spending: Theory and Cross‐Country Evidence

Abstract

SUMMARYUnder reasonable assumptions about production technologies, international competition for factors of production will lead to convergence of per capita output. Is there an analogous process that leads to convergence of public sector activity? We provide a simple model that predicts convergence in government spending under certain assumptions. We show that Barro's (1990) model of endogenous growth with government spending provides one justification for the necessary assumptions and therefore supports the convergence hypothesis. We also discuss the possibility that increasing globalization has led to convergence in government spending. Our cross‐country empirical investigation provides compelling evidence of convergence in per capita government consumption spending, per capita government capital spending, and per capita government education spending. These findings provide a new framework for explaining the underlying dynamic forces that determine growth of government.