Decomposing real and deflator-based government growth: an application to the American states

Abstract

In recent years the question of how the size of government should be measured has been an unresolved issue in the research program on government growth. Employing the simple ratio of government spending to total economic output in their measures, most scholars have failed to recognize the different inflation rates which characterize the public and private sectors, as well as the fact that observed government growth may be attributable both to the effects of differential deflators and to increases in the scope of government activity. In this paper I present a simple geometric formulation for decomposing government growth into real growth and deflator-based components. Although the utility of this method is illustrated using data from two American states (New York and Florida), the technique has broad applicability for decomposing government growth into real and deflator components for a wide range of political systems for which data are available.