Back in 2018, I wrote a column suggesting that data showing the expansion of the welfare state in developed nations resulted in “the western world’s most depressing chart.”

That same year, I also shared a similar chart with a somewhat similar title, only it showed the rising tax burden in developed nations.

On a related note, I’ve also written several columns (see here, here, here, and here) about Wagner’s Law, which looks at the growth of government in developed nations.

And my main motive in those columns was to debunk the notion that the growth of government caused economic development.

But I’ve nonetheless wondered why people have acquiesced to rising burdens of government.

Well, we may now have at least a partial answer, thanks to some interesting research by Bing Li, Daokui Li, and Keaobo Li of China’s Tsinghua University.

Here are some excerpts from their study, which was published in the Journal of Government and Economics, starting with their summary of traditional explanations for Wagner’s Law.

It is a widely observed fact that after industrialization, the size of the government has increased significantly. Government expenditure in the major industrialized economies rose from approximately 11% of GDP in 1870 to nearly 46% by the late twentieth century, stabilizing between 30% and 60% across countries by 2018… This secular trend, commonly known as Wagner’s Law, means that the history of government expansion is, at its core, a history of rising taxation. And that taxation falls overwhelmingly on labor…making the household’s experience of paying taxes the central question for understanding why fiscal expansion has been broadly accepted. …Existing explanations have approached the problem from several angles. One tradition emphasizes the development of state capacity: modern tax bureaucracies, third-party reporting, and withholding systems that reduce evasion and lower the cost of revenue collection… A second tradition highlights the catalytic role of wars, whose extraordinary fiscal demands shatter prior ceilings on acceptable taxation and leave a permanent ratchet on the size of the state… A third points to demand-side pressures: industrialization and urbanization create needs for public goods, safety nets, and social insurance that only the state can provide at scale.

They then explain why they think the conventional explanations are incomplete.

These perspectives…share a common gap. They explain why governments need more revenue and how states become capable of collecting it, yet they leave largely unanswered why citizens accept an ever-growing share of their income being taxed. …We argue that the key driver of sustained fiscal expansion is the increase of leisure time among households, who are the ultimate payers of government expenditure. …A simple observation motivates this argument. …Conventional measures of tax burden rely on GDP as the denominator, implicitly treating market output as the sole relevant indicator of national welfare. Yet this framing omits a substantial component of household well-being: the utility derived from non-market time. In an economy where rising productivity has progressively reduced the share of waking hours devoted to paid work, the gap between market output and total welfare-generating activity is large and, as we argue, fiscally consequential. To capture this gap, we construct a measure that accounts for the economic value of all available time, including non-market time.

The authors created a new measure of fiscal burdens based on ANI, or augmented national income.

The tax-to-ANI ratio then provides an alternative measure of aggregate fiscal burden. By expanding the denominator to include the economic value of non-market time, this ratio yields a lower reading of effective tax burden than the conventional tax-to-GDP ratio. …The reason ANI substantially exceeds GDP in every country in the sample is that non-market time has expanded dramatically over the course of industrialization. Since 1870, annual working hours per worker in the early-industrialized economies fell from approximately 3000h to considerably lower levels by 2019, a decline ranging from 40% to 60%. …More fundamental still was the transformation of the individual life cycle. As life expectancy rose and statutory retirement ages stabilized, the ratio of post-retirement years to working years increased steadily, making retirement a substantial phase of life.

Here are the authors’ calculations of national tax burdens based on tax/GDP and tax/ANI.

As you can see, the latter estimate shows that the fiscal burden on households is much lower.

These results make sense, at least if we think about why voters are not as upset about taxes as I would like them to be.

Though I need to think about how these results mesh with the work of Prescott and others about how higher tax rates reduce labor supply.

And I don’t think the findings of the study change the fact that nations face very grim long-run challenges because of changing demographics (as explained here, here, here, here, and here).