As economies develop and grow, their expenditures on public services and regulations also increase even at a higher rate, than their economic growth. Adolph Wagner who pioneered the empirical test of this observation found that the elasticity of government expenditures with respect to income was greater than unity. Among the reasons for this observation is the fact that as economies grow, the role of government and its expenditures increase even faster because population in urban areas increases which in turn places more demand on social amenities such as road networks, electricity, good drinking pipe borne water, refuse collection and extensive sewer systems. Additionally, expenditure on education, security services and protection of people and property, health services and many public goods become urgently needed to meet the social and political needs of the growing population especially in the urban areas. Wagner’s law therefore sees development of growth as a factor that causes more than proportional share in growth of government expenditures.
