Wagner's Law

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Wagner's law is named after the German economist Adolph Wagner (1835-1917). Wagner's law predicts that the development of an industrial economy will be accompanied by an increased share of public expenditure in gross national product.

In spite of some ambiguity, Wagner's statement in formal terms has been interpreted by Richard Musgrave as follows:

“ As progressive nations industrialize, the share of the public sector in the national economy grows continually. The increase in State Expenditure is needed because of 3 main reasons:

Wagner himself identified these as i) Social Activities of the State, ii) Administrative and Protective Actions, and iii) welfare functions.

The material below is an apparently much more generous interpretation of Wagner's original premise.

  • Socio-political, i.e., the state social functions expand over time: retirement insurance, natural disaster aid (either internal or external), environmental protection programs, etc.
  • Economic: science and technology advance, consequently there is an increase of state assignments into the sciences, technology and various investment projects, etc.
  • Historical: the state resorts to government loans for covering contingencies, and thus the sum of government debt and interest amount grow; i.e., it is an increase in debt service expenditure
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