Modelling public expenditure growth in New Zealand, 1972–2015

Abstract

ABSTRACT Historical data on various measures of the economic size of the public sector in New Zealand suggest considerable short-term variability and hint at a number of possible longer-term trends. Focusing on a public expenditure measure, this paper asks how far established models of government size can ‘explain’ those changes in New Zealand since the 1970s? Based on three separate strands in the international public finance, public choice and public administration literatures, we specify and test three distinct econometric models. We then combine those to consider whether any one model dominates or a more eclectic explanation finds support. Our empirical testing over 1972–2015 reveals that both public finance and public choice variables offer insight into changes in government expenditure in New Zealand. Additionally, suitably capturing short-term dynamics turns out to be important for reliable estimation of longer-term trends in government expenditure.