Growth of Government Expenditure: The Case of Canada

Abstract

This article examines empirically the secular growth of federal government expenditure in Canada using both political and economic variables. The alternative hypotheses and related controversies surrounding the measurement of the size and growth of government are discussed and tested. The results indicate that, at least in the case of Canada, the use of real or nominal measures does not alter the conclusions. However, depending on whether exhaustive or nonexhaustive measures of the size of government are used, significantly different results are obtained. Our empirical results suggest that both political and economic factors have significantly affected the growth of government in Canada. Among economic variables, internationally induced economic changes, dependency ratio, rate of unemployment and the growth in real income stand out. Political variables support the hypothesis that the more “liberal” the leader of the party in power and the higher the percentage of liberals in the House, the larger will be the size of public spending, and vice versa.