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Roy Bahl:

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For over two decades researchers have attempted to econo­metrically estimate the variables that determine public expendi­ture levels. Most of these studies employ linear regression to estimate the relationship between per capita expenditure on a particular public function and socio-demographic and economic variables.

Since the purpose of many of these studies is to determine statistically significant relationships between per capita public spending and the socio-demographic variables, these studies are often, and appropriately, criticized for their lack of an under­lying economic theory. However, the lack of adequate measures of either public sector output or the price of public output makes conventional empirical analysis of the demand and supply of public output difficult, if not impossible.

This paper will examine the implications of the lack of adequate measures of public sector output or prices on the anal­ysis of demand for public output, and suggest an alternative approach to determining public expenditure levels. The con­clusion is that the alternative approach suggested in this paper, i.e., the determination of public sector inputs and input price levels, is both operational and more useful in terms of ex­plaining public expenditure patterns.


Originally published in Bahl, Roy, and Michael J. Wasylenko. Conceptual Issues and an Alternative Approach to the Determination of Pubic Expenditure Levels. Northeast Regional Science Review, Vol. 5, 1975.

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