Displacement Effect and Ratchet Effect: Testing of Two Alternative Hypotheses

This article empirically tests the displacement effect of Peacock and Wiseman (PW) ratchet Bird, both which are alternatives to Wagner’s law on growth public expenditure. The explains why (horizontal) trend line moves upward in discrete steps over time, whereas affirms that expenditure “ratchets” during drops economy remains at a higher level after stabilizes. following innovations introduced present study: (a) empirical testing was conducted for Spain an extensive time period, 1880–2016; (b) relationship between PR considered, introducing Gross Domestic Product (GDP) as control variable; (c) performed using two differentiated methodologies. More specifically, methodologies employed were unit roots cointegration with structural breakpoints more recent wavelet methodology. Given PW refer situations social upheaval its consequences, this study places focus analyzing changes produced Spain’s respect Spanish Civil War 1936–1939 other disruptions before date. It concluded development crises 1982 1998. Meanwhile, methodology took place 1920 1980. In contrast, does not explain period.