2. Wagner's Hypothesis Of Public Expenditure
Introduced by Adolf Wagner – German political economist
He propounded an empirical law to analyses and explains
the trend in the growth of public expenditure.
Wagner hypothesized a functional relationship between
industrialization and the relative importance of public
Wagner’s Law of Increasing State Activity.
4. Intensive increase means expansion of
traditional functions of the State on large
Extensive increase means relates to
coverage of new welfare functions.
5. Public Expenditure Continuous Increases Due
To 3 Reasons
• Expansion of traditional functions
• Coverage of new functions
• Expanding sphere of public goods
6. Factors Affecting Public Expenditure Activities
Both demand side and supply side of public expenditure activities.
Demand side of public expenditure activities.
Supply side of public expenditure activities.
Wagner believed that public expenditure will increase faster that
the increase in per capita income of people.
7. Formulation of Wagner's
Law is that
" As per capita income
rises in industrializing
nations their public
sector will grow in
8. Criticisms of Wagner's Hypothesis
Lacks interdisciplinary approach
Ignores the influence of war
Stresses a long term trend of public economic activity
9. Peacock and Wiseman Hypothesis
This hypothesis regarding the growth of public
expenditure was put forth by Peacock and
Wiseman, in their empirical study of public
expenditure in U.K. for the period 1890-1955.
Peacock and Wiseman emphasize the time
pattern of public spending trends rather than
striving for a genuine positive theory of public
Their analysis involves three related elements.
These are displacement, inspection and
The figure reveals
that as the social
disturbance cause a
relative expansion of
the public sector, the
which occurs helps to
explain the time
pattern by which the
11. Inspection Effect
Inspection effect is the inadequacy of revenue in comparison with the
‘required’ public expenditure.
It refers to the apparent tendency for the central government
economic activity to become an increasing proportion of total public
sector economic activity, when a society is experiencing economic