Wagner’s Law of Increasing State Activity
Summary
TLDRIn this video, presenter Minisetti discusses Wagner's Law, which posits that public expenditure grows with national income. Originating from German economist Adolf Wagner, the law suggests that as economies expand, governments must increase spending on infrastructure, social welfare, and public goods to meet escalating public demand. Despite its limitations, such as its applicability primarily to the German economy and the neglect of war's impact on spending, Wagner's Law offers valuable insights into the relationship between economic growth and state activity.
Takeaways
- 📚 Wagner's Law is a theory proposed by German economist Adolf Wagner, suggesting that public expenditure increases as national income grows.
- 💰 Public expenditure is incurred by central and local governments and includes spending on infrastructure, law and order, social welfare, and national defense.
- 📈 The law posits that public expenditure will increase at a faster rate than per capita income over time, reflecting the growing demands of the population.
- 📊 The provided diagram illustrates the relationship between per capita income and public expenditure, with one line showing equal growth and another showing public expenditure outpacing income growth.
- 🔑 Wagner's Law is supported by three main reasons: expansion of traditional government functions, the coverage of new functions, and the provision of public goods and merit goods.
- 🛡️ Traditional functions include defense, administration, and justice, and an expansion in these areas leads to increased government spending.
- 🆕 New functions that governments undertake, such as pensions, unemployment benefits, and health insurance, also contribute to the rise in public expenditure.
- 🏞️ Public goods like roads and public parks, as well as merit goods like education, require continuous investment by the government, further driving up public expenditure.
- 🚫 The law has been criticized for its limited applicability, as it is based on observations of the German economy and may not be universally applicable.
- ⚔️ The theory neglects the impact of war on government spending, which can significantly influence public expenditure.
- 🤔 Wagner's Law is considered a normative theory based on the economist's opinion and may not always reflect actual economic conditions or be practically applicable.
Q & A
What is Wagner's Law?
-Wagner's Law, proposed by German economist Adolf Wagner, suggests that public expenditure increases as national income increases.
Why does public expenditure increase according to Wagner's Law?
-Public expenditure increases because as economies grow, the government has to increase spending on infrastructure, law and order, social welfare, and public health to meet the increasing demand of the people.
What is the relationship between public expenditure and per capita income as described by Wagner's Law?
-According to Wagner's Law, over time, public expenditure will increase faster than the increase in per capita income.
What is depicted on the x-axis and y-axis in the diagram illustrating Wagner's Law?
-In the diagram, the x-axis represents real per capita income, while the y-axis represents the real per capita output of public goods or public expenditure.
How does the PG line in the diagram relate to Wagner's hypothesis?
-The PG line in the diagram shows public expenditure and income increasing at the same rate, which does not align with Wagner's hypothesis that public expenditure grows faster than income.
What does the PG2 curve in the diagram represent?
-The PG2 curve represents the scenario where public expenditure is growing faster than income, which is in line with Wagner's hypothesis.
What are the reasons for public expenditure according to Wagner?
-Wagner identifies three reasons for public expenditure: expansion of traditional functions, coverage of new functions, and provision of public goods and merit goods.
What are the criticisms of Wagner's Law?
-Criticisms of Wagner's Law include its limited applicability, as it is based on observations of the German economy and may not be applicable to others; neglect of the impact of war on government spending; and the theory being normative, based on Wagner's opinion rather than empirical evidence.
Why might Wagner's Law have limited applicability?
-Wagner's Law may have limited applicability because it is based on the observation of the German economy, and economic conditions and government structures can vary significantly among different countries.
What is the criticism regarding the impact of war on government spending in Wagner's Law?
-The criticism is that Wagner's Law ignores the influence of war on government spending, which can significantly alter public expenditure patterns.
How is the theory of Wagner's Law considered normative?
-The theory is considered normative because it is based on Wagner's personal opinion and may not necessarily reflect actual economic conditions or be universally applicable.
Outlines
📈 Wagner's Law of Increasing State Activity
This paragraph introduces Wagner's Law, which posits that public expenditure increases as national income grows. The law was formulated by German economist Adolf Wagner and is illustrated with a diagram showing the relationship between per capita income and public expenditure. The explanation covers the reasons behind this trend, such as the expansion of traditional government functions, the addition of new functions like social welfare, and the provision of public and merit goods. The paragraph also addresses criticisms of Wagner's Law, including its limited applicability to the German economy, the neglect of war's impact on government spending, and the normative nature of the theory.
Mindmap
Keywords
💡Wagner's Law
💡Public Expenditure
💡National Income
💡Infrastructure
💡Law and Order
💡Social Welfare
💡Public Goods
💡Merit Goods
💡Expansion of Traditional Function
💡Coverage of New Functions
💡Diagram
💡Criticism
Highlights
Introduction to Wagner's Law of increasing state activity by German Economist Adolf Wagner.
Public expenditure increases as national income increases.
Public expenditure includes expenditures by central and local governments on infrastructure, law and order, and social welfare.
Wagner's Law suggests that public expenditure grows faster than per capita income over time.
Diagrammatic representation of Wagner's Law with real per capita income on the x-axis and public expenditure on the y-axis.
Explanation of the PG line showing public expenditure and income increasing at the same rate, not representing Wagner's hypothesis.
Description of the PG2 curve illustrating public expenditure growing faster than income, aligning with Wagner's hypothesis.
Reasons for public expenditure according to Wagner: expansion of traditional government functions.
Reasons for public expenditure: coverage of new functions such as old-age pensions, unemployment allowances, and health insurance.
Provision of public goods and merit goods as a reason for increased public expenditure.
Criticism of Wagner's Law: limited applicability based on observations of the German economy.
Criticism: neglect of the impact of war on government spending.
Criticism: Wagner's Law is a normative theory based on his opinion, which may not be universally applicable.
Summary of Wagner's Law of increasing state activity and its implications for government spending.
Thanking the audience for watching the video and signing off.
Transcripts
everyone my name is minisetti I hope you
all are staying healthy today we are
going to talk about Wagner's law of
increasing State activity this law is
given by German Economist Adolf Wagner
according to this low public expenditure
increase as national income increase
according to this row public expenditure
increase as the national income increase
as we all know public expenditure is
incurred by Central State and local
government or for example expenditure on
street light Park roads and National
Defense and according to this law these
expenditures increase as a national
income increase because as economies
growing government has to increase the
expenditure on infrastructure Law and
Order social welfare Public Health to
meet the increasing demand of people
according to Wagner over a time period
public expenditure will increase faster
than the increase in per capita income
according to Wagner over time period
public expenditure will increase faster
than the increase in per capita income
in this diagram you can see here on
x-axis we have real per capita income
and y-axis we are real per capita output
of public goods or we can say that on
y-axis we have public expenditure this
PG land is showing expenditure and
income both are increasing at same rate
this PG line is showing a public
expenditure and income both are
increasing at same rate that's why this
PG is not our Wagoner hypothesis on the
other hand this pg2 curve is showing
public expenditure is growing faster
than income this PG to curvy showing
public expenditure is growing faster
than the income that's why this pg2 is
our Wagner hypothesis because according
to Wagner over a time period public
expenditure will increase faster than
the increase in per capita income of the
people now we will say reason of public
expenditure according to Wagoner first
reason is expansion of traditional
function as we all know government is
performing so many traditional function
for example defense Administration or
Justice provision of Social and civil
Humanities if traditional function
expand then government expenditure will
also increase second reason is coverage
of new functions apart from doing
expenditure on traditional function
government also covers some new
functions like oldest pension
unemployment allowance health insurance
as this function expand government
expenditure also increase last reason of
public expenditure according to Wagner
is provision of public goods and Merit
Goods as we all know government has to
increase the expenditure on public good
for example roads public park low and
Order similar government has to increase
the expenditure on Merit Goods like
education now we will see criticism of
this low first is limited applicability
this low is based on observation of
German economy this is not applicable on
others economy second is neglect impact
of War influence this Theory ignores
influence of War on government spending
and third criticism is normative Theory
this theory is based on Wagner's opinion
and this is not necessary it would be
actual applicable or node this is all
about Wagner law of increasing State
activity I think you got it and thank
you so much for watching this video bye
take care
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