Does Urbanization Mean Bigger Governments?
Documentos de trabajo Economía y Finanzas No 13-11
41 Pages Posted: 10 Feb 2014
Date Written: April 14, 2013
This paper proposes urbanization as a determinant of government size. As people move to cities, their demand for a more defined set of regulations, but also for basic health, education, and income standards rises. Our theoretical framework determines how the regional distribution of the population affects government size. We test this theory on panel data of 175 countries from 1960 to 2010 and two state-level samples from Colombia and Germany. Results demonstrate a strong positive effect from urbanization on government spending, with a 1 percent increase in the amount of urban citizens leading to a 0.2 percent rise in public expenditure. Our findings indicate that public sectors may become more important as worldwide urbanization is progressing. This result underlines why government effectiveness and the quality of public goods provision will be even more important in the future.
Keywords: Government Size, Urbanization, Population Concentration
JEL Classification: H10, H50, H75, R50
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