UNIVERSIDAD DE MANILA
Antonio Villegas St. Mehan Garden, Manila
REPORT ON THE TOPIC
EXPENDITURE THEORY, POLICY AND PERFORMANCE
In Partial fulfillment of the requirement in the subject
PA026A – PUBLIC FISCAL ADMINISTRATION
PREPARED AND SUBMITTED BY
Vincent Yuzon Rosales II
Antonio Vitan Jr.
Ma. Lourdes Cuenco
PROFESSOR CYNTHIA RAVELA CUBOS
June 28, 2011
THEORIES OF EXPENDITURE GROWTH
Three prominent theories that used the time-pattern of expenditure in the long-run to explain the expansion of the public sector are discuss in this chapter. Although this theories were formulated based on the experience of the now developed countries, the general idea of government expansion and the underlying concepts provide some explanations as to the pattern and growth of our government.
Adolph Wagner a 19th century German political economist. Who made one of the earliest attempts to explain public sector growth. Observe the tendency of the public sector in a number of industrialize countries such as Britain, USA, France, Germany, etc. to grow, both absolutely and relative to the rest of the economy. He predicted a public sector that would grow continuously, and considered society’s economic and social structure as factors that influenced this continuous growth. Wagner’s prediction was called the “law of increasing public and particularly state activities” or the “Wagner’s Law”.
The equation below shows Wagner’s presumption that the existence of a functional cause and effect relationship between growth of an economy and the relative growth of its public sector.
____________ < _____________ RCPI1 RCPI2
He postulated that as per capita income and output increase in industrializing nations, its public sector necessarily grow as a proportion to...