Explaining the growth of government in Sweden: A disequilibrium approach

Municipal Amalgamation and the Growth of the Local Public Sector in Sweden*

“…For the most part the findings for the price-theoretic variables are similar for both versions of the model and they are consistent with prior research. Relative prices for services provided by the public sector did increase during most of the sample period and the present results confirm earlier work, both for Sweden (Henrekson and Lybeck, 1988;Henrekson, 1988) and other countries [e.g., Borcherding (1985)], that this contributed to the growth of the public sector during this century. The price elasticity of demand implied by the relative price coefficients is between -0.5 and -0.7.…”

“…The effect of population on the growth of the municipal sector is not statistically significant, a result that confirms most previous studies employing aggregate data on public expenditures (Peltzman, 1980;Borcherding, 1985;Henrekson and Lybeck, 1988). This finding appears to indicate that there are no "publicness" scale economies associated with the delivery of municipal services.…”

“…In essence, Wagner (1893) argued that the demand for government services would grow at a faster rate than national income as a society developed ec~nomically.~~ The results in the present study indicate that the income elasticity of total municipal expenditures is approximately unity, indicating that this factor accounts for little of the rising share expenditures to GNP observed in that sector. This particular elasticity estimate is somewhat higher than what has been reported in earlier work for the Swedish municipal sector (Murray, 1985, p. 305) but it is in agreement with the findings of Henrekson and Lybeck (1988) and Henrekson (1988) in their studies of the overall growth of government in that ~ountry. '~ "The reader may question whether a possible simultaneity problem exists between the income and government growth variables in the estimation of Equation (3).…”

“…IfiHenrekson (1988) and Henrekson and Lybeck (1988) were able to obtain unpublished data on median income for their studies of the growth of Swedish government expenditures at all levels. The conclusion of both papers was that income inequality did not have a statistically significant effect on total government spending.…”

“…Most empirical work on this topic has focused on explaining the growth in the overall size of government. While a few studies have distinguished between the growth in exhaustive public-sector activities and the growth in pure transfer payments [e.g., Henrekson and Lybeck (1988)], very little analysis has been done on the growth of subnational governments.' This is surprising for two reasons.…”