PUBLIC EXPENDITURE DYNAMICS IN SPAIN: A SIMPLIFIED MODEL OF ITS DETERMINANTS
Manuel Jaén García
Luis Palma Martos
. Public expenditure increase is explained by very diverse models. There are very simplified models, even though some have a strong theoretical background (e.g. Wagner's Law or the Displacement Effect), and others based on empirical rather than theoretical aspects. In an intermediate position, there are models of determinants of public expenditure from the demand and supply perspectives. In both cases we base our study on multivariant models that express public expenditure as a variable which depends on many factors. However, while demand models are strongly supported by the theory (model) of the median voter (Borcherding and Deacon, 1972 and Bergstrom and Goodman, 1973), supply models are based on a simple Cobb-Douglas equation. It would be highly interesting to synthesize both kinds of influence. However, the design of this model and its empirical contrast is most complex due to the high number of variables that should be included which would lead to serious problems of endogeneity and multicollinearity. Also, the existence of very limited statistical data would to lead an important lack of degrees of freedom.
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