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Adolf Wagner (a German economist in the nineteenth century) analyzed trends in the growth
of public expenditure and in the size of the public sector in major countries of the world. His observations led to what is now called Wagner's Law or the Law of Rising Public
Expenditure, (He preferred to call it an observation).
It postulates that;
a) The extension of the functions of the state leads to an increase in public expenditure on
administration, and regulation of the economy;
b) An increase in national income of a Country will bring about a growth in public
expenditure on such programmes as education, health and welfare; and
c) The rise in public expenditure will be more than proportional to the increase in the
national income and will thus result in a relative expansion of the public sector. The cause
and effect can therefore be stated as follows; social progress leads to increased state
activity, this is turn gives rise to greater public expenditure which results in a bigger
public sector. Wagner's Law demonstrated a tendency but not the inevitability of
continuous growth of public expenditure.
Displacement Effect
Growth of public expenditure during a war is, however, inevitable. Analysis of the time
pattern of public expenditure by Professor A.T. Peacock and J. Wiseman has established the
Displacement Effect. They found that public expenditure increases during a war or a period
of social crisis. When the war ends or the crisis is resolved, public expenditure falls, but not to the original level at the start of the emergency, with the result that growth in public expenditure occurs in stages.
NatalieR answered the question on June 21, 2022 at 09:42
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