Wagner law of increasing state activities.

Wagner law of public expenditure:

Wagner's law known as the law of the increasing state activities is a principle named after the German economist Adolph Wagner. This law is given in 1880. The law state that with economic growth and development a nation will increase in the activities of public sector. He gives a relationship between level of development and public expenditure.

According to Wagner as an economy development of overtime the activities and function of the state as well as govt increase. He said this was based on a comprehensive comparison of the different countries. The study shows that in progressive societies.

(i) The Central and local government activities keep on increasing regularly.

(ii) They perform both the old and new functions more efficiently and completely.

(iii) The expansion and intensification of government function increase public expenditure.

To justify this law of increasing state activities and he divided public expenditure and internal expenditure and stated why each will increase with development of an economy.

External expenditure increase as the strategic approach of a government changes from simple aggression to prevention of attack. It has also increases due to the increase in demand for goods and services of the public sector.

Internal expenditure increases due to greater friction between economic units and people, high standard of living, maintained of large administrative units etc. as a result of economic development. 

Adolph Wagner also argued that the income elasticity for government services is greater than unity that is public expenditure will increase more rapidly than increase in income of the public. To substantiate this he gives the variables that effect the demand and supply of public expenditure.

Variables that the effect both the demand and the supply of public expenditure-

(i) Per capita income

(ii) Density and rate of population growth

Variables that effect demand of public expenditure

(i) Urbanization and industrialization

(ii) Age composition

(iii) Distribution of income

Variables that effect supply of public expenditure-

(i) State of production of government

(ii) Quality of production.

Conclusion of Wagner law: 

According to the law of state activities as per capita income and output increases in industrial nationals, the public sector grows as a proportion of total economic activity.