Tests of a competitive model of the size and growth of government

In this paper we test a general equilibrium model of the size and growth of government developed by Dao and Esfahani (1995) using OECD cross‐sectional and US time‐series data. The model is based on the assumption that various socioeconomic groups try to redistribute income in their favor. Results of the tests are consistent with the theoretical explanations implied by the model. They show that the recent growth of government may be explained by the increase in the role of human capital as a factor of production, by the rise in the proportion of the elderly population, and by the reductions in the relative value of nonmarket uses of labor brought about by increased specialization and population pressure.