The Dynamics of Size, Composition, and Fiscal Authority in Government Expenditures: Examining The Effects of Social Disturbance

This dissertation investigates changes in size, composition, and fiscal authority of government expenditure brought on by social disturbance by examining the effects of German reunification on government spending. This research tests several hypotheses using data on total spending and six major sub-policy spending categories between 1972 and 2006.

First, this study identifies strong evidence of a large upward displacement effect following reunification, with a particular emphasis on social security spending. Second, this study finds a strong and positive correlation between per capita GDP and total spending as well as social security, education, and public safety spending, which confirms Wagner's Law. Results also reveal that unemployment rate is strongly and positively related to total spending and several sub policy categories both before and after reunification.

Additionally, this study finds that the proportions of the youth and elderly populations are negatively associated with total spending after reunification. However, the proportion of the youth population is positively associated with per capita education spending, as the proportion of elderly population with social security spending.

The results also show that economic openness has a strong positive impact on both total spending and economic services spending; however, the relationship between economic openness and social security, education, and health spending after reunification is negative. The right party control variable has no significant impact on total spending after reunification, though party control does seem to influence social security and defense spending. Furthermore, the election variable does not have a significant impact on spending except for a positive and significant impact on social security spending after reunification.

On the other hand, the coalition government and the proportion of public employees variables have strong and positive impacts on total spending and several sub-policy categories after reunification. The deficit ratio variable is found to have a positive and significant impact on total spending and public safety spending after reunification.

Lastly, using a traditional expenditure ratio and a composite ratio to measure fiscal decentralization, this study finds that after reunification there is a trend towards fiscal centralization in total spending and social security, economic services, health, and public safety spending.