Drivers of public sector growth in Imperial Austria 1870-1913

We test several hypotheses concerning the growth of public expenditure by the Austrian monarchy between 1870 and 1913 in relation to Wagner's law, as well as the impact of increasing public indebtedness and the expanding role of the Imperial Council towards the end of the analyzed period, using the bounds testing approach and Granger-causality analysis. We find evidence for Wagner's law in the case of public investment, but not general public expenditure. Increases in general public expenditure were mostly driven by the public debt, rather than by increasing national income. We do not find evidence that institutional reforms by the Imperial Council changed the trends in public expenditure.