Deficits, government spending, and inflation

Public Deficits, Government Spending, and Economic Growth: The Zhuhai Experience

“…First, the estimate of the tax price elasticity is -2.266, which indicates that a decrease in perceived price of government services would increase the demand for government spending. This result is highly consistent with Niskanen [7], Provopoulos [8], Christopoulos and Tsionas [10] who have found evidence of Buchanan-Wagner hypothesis that large deficits have be instrumental in excessive government spending. Table 3.…”

“…According to Niskanen [7], the demand function for public services by the average voter-taxpayer is considered to be of the Cobb-Douglas type and is specified as:…”

“…Most of previous studies attributes expending government spending to the growth of income. However, from the political point of view, several works of the extant research have examined how deficits have affected the growth of government expenditure [7][8]. Following this vein, Hondroyiannis and Papapetrou [9] use the cointegration techniques to tests the validity of the Buchanan-Wagner hypothesis for Greece and find evidence supporting this hypothesis.…”

Testing for causality between government spending and taxation

“…To the extent that the preferences of the medium voter determine the amount of social goods provided by the State (median voter theorem), it is of importance to know how the citizen-voters perceive public borrowing as a means of financing the spending. Buchanan and Wagner (1977) claim that high deficits lead to higher spending, to the extent that they reduce the tax price of the goods publicly provided, thus increasing their demand (this proposition has been tested empirically by Niskanen, 1978 andProvopoulos, 1982). According to this view, the level of government spending is also affected by the composition of the various sources of finance, that is the tax-finance/debt-finance ratio.…”

The (UN)importance of public debt: A review essay

“…It can therefore be no surprise that it is not possible to draw any definite conclusions from this literature. While Barro (1978) and Niskanen (1978) concluded, for instance, that government deficits in the US did not affect the rate of money growth, Hamburger and Zwick (1981) found a significant influence of government deficits on the money supply.…”