THE “RATCHET EFFECT” IN THE GROWTH OF GOVERNMENT: A VIABLE HYPOTHESIS FOR THE CASE OF ARGENTINA?

Ariel R Tejera, Leandro A Veron, Alan G Futerman

Abstract


The present work analyses the “Ratchet Effect” theory as developed by Robert Higgs, originally presented to explain the dynamics in the growth of government for the case of the US, to study its possible application to the case of Argentina. The theory explains that the government grows during recessionary periods and later decreases but in a lower proportion than the initial expansion. Hence, a ratchet is identified in the government growth dynamic. For this purpose, a quantitative analysis is presented based on the econometric model by Hercowitz and Strawczynski, by using the data of Public Expenditure of Argentina corresponding to the years between 1961 and 2009. Although a qualitative analysis of the kind presented by Higgs is not developed in the present work, a quantitative analysis does not corroborate the application of the theory to the case under study. Therefore, our study claims that the government growth dynamic in Argentina is different than in the US, or any other country that registers a specific government growth compatible with the “Ratchet Effect” theory. Although our analysis does not invalidate the possibility of the existence of a specific dynamic in the growth of Argentina´s government compatible with Higgs’ hypothesis based on qualitative data, we believe that a quantitative corroboration of the theory is relevant to identify its applicability in any given case.


Keywords


Government Growth, Ratchet Effect, Argentina, Robert Higgs, Business Cycle

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References


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