The determinants of government expenditure growth in Greece, 1950-1980.

The scope of this study is the examination of various theoretical contributions to the literature of the determinants of government expenditure growth. In the beginning we give a critical overview of different theories, starting with Wagner's Law, then passing onto Peacock and Wiseman's Displacement Effect Hypothesis and then putting bureaucracy, politics and other economic and social factors into perspective. We conclude that the best way of examining the growth of the public sector is by means of interdisciplinary approaches. Then, after giving a synoptic description of the Greek economy, polity and society we proceed into the empirical testing of theoretical propositions, which covers the years 1950-1980. We stress the fact that government expenditures is a non-uniform set interacting with the private sector and we employ empirical causality tests to a large number of variables in an attempt to identify causal relationships rather than assume them ex ante. Having done this, we proceed into calculating income elasticities for various categories of government expenditures, and we find that, in general, they are unitary except for those which are associated with transfer payments and are higher than unity. Furthermore, we were not able to identify any displacements in the Peacock and Wiseman sense, although we did find out that defence expenditure affects non-defence expenditure negatively. Finally, we constructed a model in order to examine the relative price effect, and the results we obtained were not fully in accordance with Baumol's assertions, any differences, however, being explained by the bureaucratic way of production.