Lectures in Government and Economics | Why has the size of government steadily expanded? Explaining “Wagner’s Law” using the theory of labor efficiency

Topic: Why has the size of government steadily expanded? Explaining “Wagner’s Law” using the theory of labor efficiency 

Lecturer: Li Bing, Researcher at the Academic Center for Chinese Economic Practice and Thinking (ACCEPT), Tsinghua University 

Time: June 15 (Thursday), 19:30 - 21:00 
 
Language: Chinese 

Tencent Meeting ID: 487-736-354 
 
Xueshuo Platform: https://www.51xueshuo.com/#/viewLive?planCode=1666353111201091584 

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Introduction to the Topic:

Over the past several centuries, the size of governments around the world have undergone a dramatic expansion during the process of economic development, with the average share of government spending as a proportion of GDP having risen from around 10% to as much as 39% on average. This pattern of development is often referred to as Wagner’s Law. This lecture aims to explain the root causes of Wagner's Law and predict future changes in the size of governments.

The interpretations offered by the existing literature can mainly be divided into three categories: first is the theory of state capacity – i.e., economic development leads to a significant improvement in the government's means and capacity for tax collection; second is the theory of state functions – i.e., economic development requires a greater role for the government, thereby expanding the size of the government, such as the necessity to increase its scope due to a need to resist growing domestic economic inequality or external risks and shocks under a situation where the country remains open to the outside world; third is the theory of war promotion – i.e., the state institutes new categories of taxes to finance wartime expenditures during a period of ongoing conflict, with tax rates often remaining high even after the war has ended.

This lecture will propose a much more basic theory to explain Wagner's law—namely, the theory of labor efficiency. We believe that the essence of economic development is the continuous rise in labor productivity, which brings about a continuous increase in individual income levels, which in turn results in the relative increase in the preference for these individuals to enjoy more leisure time. In this way, the general public is more willing to accept a relatively higher tax rate, thus sacrificing a portion of their labor income in order to obtain corresponding public services. This reflects the fact that the negative impact of high taxes is partly compensated by a correspondingly satisfactory increase in leisure time over the course of economic development. Our theory supports the fundamental principle in Marx’s thinking on historical materialism that holds that the superstructure of a society is determined by its economic base.

Our research team has also developed a simple model to demonstrate this mechanism, which makes use of historical data and typical cases from a variety of countries to provide support for its claims. A direct conclusion that can be drawn from this approach is that, given the widespread adoption of advanced technologies as best represented by the application of artificial intelligence, the size of government is projected to expand even further in the future alongside a simultaneous improvement in labor efficiency. This reasoning is entirely consistent with the recent emergence of Universal Basic Income (UBI) as a widely discussed topic around the world. 

Speaker Bio: 

 
Li Bing is a researcher at Tsinghua University’s Academic Center for Chinese Economic Practice and Thinking (ACCEPT), having previously taken on the role of assistant professor in the Department of Economics at the university’s School of Economics and Management. His main research interests include Government and Economics, Money and Finance, Public Finance, and Chinese Economy. 
 

He has published many academic papers in English-language journals, such as Macroeconomic Dynamics, China Economic Review, and Economics Letters; and has served as a peer reviewer for multiple scholarly publications, including the Journal of Economic Dynamics and Control, Journal of Money, Credit and Banking, Journal of Macroeconomics, China Economic Review, Emerging Markets Finance and Trade, Economic Modelling, Journal of Financial Research, Nankai Economic Studies, and China Economic Quarterly, among other journals. Previously, he undertook and participated in several national longitudinal research projects, including receiving research grants for a project under the National Natural Science Foundation of China’s Youth Scientists Fund and a Young Teachers Basic Research Project under the Tsinghua University Initiative Scientific Research Program.  

Li received his bachelor's, master's and doctoral degrees in economics from Nankai University, the University of British Columbia and Indiana University, respectively.