The Ratchet Effect

Abstract

This paper explores the "ratchet effect," which is a theory of government growth. The underlying logic is as follows. During a crisis, both the magnitude (or “scale”) and the range (or “scope”) of government activities grow, relative to before the crisis. After the crisis subsides, some government policies and activities recede, but the overall size of government does not return to its pre-crisis size. After discussing the nuances of the ratchet effect framework, we consider historic examples and extensions of the theory in the academic literature.

Keywords: ratchet effect, growth of government, Crisis Hypothesis, Modernization Hypothesis, Public Goods Hypothesis, Welfare State Hypothesis