Explaining Government Spending: a Cointegration Approach

Based on a comprehensive theoretical model we investigate the determinants of government spending. Besides GDP, commonly associated with either Walra´s law or Keynesian macro stabilization policies, we consider some variables identified with the public choice approach, namely median voters, pressure groups and the ideology of the government in power. These other variables are women, elderly population and population occupied in agriculture. The model is tested empirically using Johansen´s cointegration technique for the cases of Australia and Canada with data on general government expenditure, thus covering all government sectors, including social security. For the most part, we find long-run relationships among the variables and with the expected signs.