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Working Paper

Wagner's Hypothesis: A Local Perspective

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Wagner’s hypothesis of an expanding public sector as an economy develops is tested using pooled time-series cross-sectional data for U.S. states from 1964 to 1986. Comparing government size among fiscal jurisdictions within a single nation reduces the problems of data comparability and of controlling for cultural and institutional differences that plague the more common international tests of this theory. Our results are inconsistent with Wagner’s hypothesis, yielding a negative relationship between public-sector size and output. However, some empirical support is found in the protective services and public welfare components of government activity.
01.01.1992ISSN 2573-7953 WP 92-02DOI 10.26509/frbc-wp-199202

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Eberts, Randall, and Timothy J. Gronberg. 1992. “Wagner's Hypothesis: A Local Perspective.” Federal Reserve Bank of Cleveland, Working Paper No. 92-02. https://doi.org/10.26509/frbc-wp-199202