What is the Leviathan hypothesis in simple terms?

Government wants to tax a lot, but splitting powers among competing localities limits taxes and size.

Evidence is mixed; effects appear mainly when local governments raise their own taxes.

Leviathan Hypothesis

📈 Economics By CampusDown Wiki Editorial Team Last updated October 27, 2026

The Leviathan hypothesis treats government as a revenue-maximising monster, a 'Leviathan', and claims that decentralising fiscal powers constrains its overall size through competition among local governments. Geoffrey Brennan and James Buchanan proposed it in 1980.

Contents

1. Concept and theory
2. Empirical tests
3. Conditions and significance
4. FAQ
5. References

Concept and theory

From a public choice perspective, Brennan and Buchanan (1980) assumed governments seek to maximise revenue and need constitutional constraints, decentralisation among them. If residents and firms can move, local governments compete as in the Tiebout model and cannot raise taxes freely, echoing the budget-maximising bureaucrat concern.

Empirical tests

Oates (1985) found no support across countries and US states. Marlow (1988) found supportive US evidence, while Forbes and Zampelli (1989) rejected it with county data. Jin and Zou (2002) showed revenue and expenditure decentralisation have different effects.

Conditions and significance

Stein (1999) found that transfer-dependent decentralisation in Latin America enlarged government. Rodden (2003) showed government shrinks only when subnational units finance spending with own-source taxes. The hypothesis thus highlights the design of fiscal federalism.

FAQ

What is the Leviathan hypothesis in simple terms?: Government wants to tax a lot, but splitting powers among competing localities limits taxes and size.
Is it supported?: Evidence is mixed; effects appear mainly when local governments raise their own taxes.

Sources reviewed: 2026-10-26

References

Brennan, G., & Buchanan, J. M. (1980). The power to tax: Analytical foundations of a fiscal constitution. Cambridge University Press. The book that set out the Leviathan model.
Oates, W. E. (1985). Searching for Leviathan: An empirical study. American Economic Review, 75(4), 748–757. The first major empirical test, finding little support.
Marlow, M. L. (1988). Fiscal decentralization and government size. Public Choice, 56(3), 259–269. US evidence supporting the hypothesis.
Forbes, K. F., & Zampelli, E. M. (1989). Is Leviathan a mythical beast? American Economic Review, 79(3), 568–577. County-level evidence against the hypothesis.
Stein, E. (1999). Fiscal decentralization and government size in Latin America. Journal of Applied Economics, 2(2), 357–391. Transfer-dependent decentralisation can enlarge government.
Jin, J., & Zou, H. (2002). How does fiscal decentralization affect aggregate, national, and subnational government size? Journal of Urban Economics, 52(2), 270–293. Separates revenue and expenditure decentralisation.
Rodden, J. (2003). Reviving Leviathan: Fiscal federalism and the growth of government. International Organization, 57(4), 695–729. Shows the effect depends on own-source taxation.

Reports and materials that use this theory (Korean)

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Fiscal FederalismWhat fiscal federalism is: how revenue and spending functions should be divided between central and local governments. Covers the decentralization theorem and first- and second-generation theories.📈 Economics Public Choice TheoryWhat public choice theory is, its origins in Wicksell, Black, Arrow and Downs, Buchanan and Tullock's The Calculus of Consent, the median voter theorem, rent seeking, Niskanen's bureaucracy model, regulatory capture, constitutional economics, government failure and major critiques.🏛️ Politics & Public Administration Tiebout ModelWhat the Tiebout model is: residents sort into communities offering their preferred mix of taxes and services, so local public goods can be supplied efficiently, with assumptions, evidence, sorting and fiscal federalism.📈 Economics Budget-Maximizing Bureaucrat ModelWhat the budget-maximizing bureaucrat model is: Niskanen's theory that bureaucrats maximize their agency budgets, leading to oversupply of public services. Covers assumptions, revisions and critiques.🏛️ Politics & Public Administration

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This article was last updated on October 27, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.