A. Bastianin, C. F. Del Bo, M. Florio – CSIL WP Series N. 01/2026

A surprising first stylized fact about developed capitalist economies is that the growth of government expenditure (G) has, in the long run, been several times faster than the growth of GDP (Y). As a result, countries where the G/Y ratio was in the single digits in the nineteenth century, are now converging to around 45%. Moreover, the dynamic pattern is similar across countries: an Sshaped trajectory, similar to a logistic curve. This is a second stylized fact. The composition of expenditure suggests that the main drivers tend to be similar across countries over time, pointing to the demand and supply of a range of services. This is a third stylized fact. The paper, after a taking stock of Wagner’s Law and Pigou’s Excess Burden of Taxation, combines them in a dynamic equation of the growth of government. Then we propose an empirical analysis of G/Y dynamics for G7 countries, confirm that there is a common S-shaped trajectory, and offer an interpretation in terms of benefits and costs of government expenditures. Finally, we suggest some policy implications suggesting a conflict between the welfare state and a sustainable trajectory of public finance and the need for non-tax revenue leveraging on public assets.

To read the working paper: https://www.csilmilano.com/wp-content/uploads/2026/03/WP2026_01.pdf