Determinants of Government Expenditures: New Evidence From Disaggregative Data

In this paper we test a model of per capita spending for government services developed by Dao (1994) using data from a set of 105 countries. We are able to show that the income elasticity of the demand for public services depends on the type of devices and on how developed (economically or politically) a country is. We also find that population density explains variations in certain types of government expenditures among DCs, while the level of urbanization is a better empirical proxy for interdependencies which arise from the process of economic development. Per capita government spending for education and health is shown to vary positively with the relative price of public sector output (suggesting a price-inelastic demand for these two government services) and their provision is subject to scale economies in countries with large populations.