www.elsevier.com/locate/worlddev

World Development Vol. 33, No. 5, pp. 729–743, 2005 Ó 2005 Elsevier Ltd. All rights reserved Printed in Great Britain 0305-750X/$ - see front matter

doi:10.1016/j.worlddev.2004.12.001

Economic Liberalization, the Changing Role of the State and ‘‘Wagner’s Law’’: China’s Development Experience since 1978
DAMIAN TOBIN * CeFiMS, SOAS, University of London, UK
Summary. — The paper applies Wagner’s Law of increasing state activity to illustrate the changing function of the state in China as a consequence of economic liberalization. Wagner’s Law describes the association between increasing national wealth in progressive states and the rise in state activity and expenditure. This indicates that the causes of bureaucratic expansion are to be sought, not just in terms of political pressures, but the interplay between political considerations and the economic necessities, resulting from the emergence of new property rights. A simple illustrative model is developed to measure the effects of increasing national wealth and the growth of the public sector. This suggests that the patterns of economic development observed by Wagner in 19th century Europe are not unlike those observed in China today. Ó 2005 Elsevier Ltd. All rights reserved. Key words — Asia, China, economic growth, public sector

1. INTRODUCTION The relationship between economic growth and the size of the state sector has long been a topic of interest for public policy practitioners and academics alike. Throughout history, the role of the state has been critical in determining particular economic outcomes. Research in this area has in general focused on how economic policies impact upon economic growth. Keynesian theory, for example, indicates that given the existence of idle capacity and other resources, increased government expenditure will increase national income.