The Growth of Government: A Historical Perspective

Abstract

The first part of this book, comprising Chapters I–III, is focused on the growth of public spending in industrial countries over a period of about 125 years, from 1870 to the mid 1990s. The first chapter breaks the period in several parts: 1870 up to World War I, the interwar period, the period up to 1980, and the more recent years. Chapter II provides a breakdown of the various government programs that contributed to the growth of spending. It shows that areas that had not been the responsibility of the government in the past came to play an increasingly important role in public spending with the passage of time. Some of these programs became the most important reason why spending grew significantly. The growth of public spending had to be financed mostly by tax revenue. Chapter III describes the changes in tax revenue and in tax structure that made possible the financing of the growing expenditure. It also shows that when tax increases were not sufficient to finance higher public expenditures, governments resorted to debt financing. This led to the increase in public debt and, because of the need to service the debt, to another demand on public revenue. The main conclusion of Part One is that the growth of public spending was not caused by inevitable forces that made it imperative. It was thus not inevitable as assumed by some theories about the growth of spending such as Wagner's Law or Baumol's disease.