International Tensions International tensions that fall short of war can still have the effect of encouraging government growth. For example, the growth in government during the Reagan era reflected a military buildup. The Soviet Union could not match the economic contribution of the arms race. This contributed to the collapse of that system. Economic Growth Economic growth itself can spur growth in government.
Tax revenues have a positive elasticity with respect to national income.
As national income increases, tax revenue increases at a faster rate. A large volume of social overhead capital is necessary to sustain the complexity of patterns of transportation and communication, and to further specialization and interdependence. Additional services for police and fire protection and sanitation are required to meet the needs of a concentrated population. Here, economic activity creates externalities that open the door for government intervention and regulation.