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Wagner'S Law: An Econometric Test For South Africa, 1960-2006

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  • Emmanuel Ziramba

Abstract

The main objective for this paper is to test Wagner's law by analysing the causal relationships between real government expenditure and real income for South Africa for the period 1960-2006. The paper tests the long-run relationship between the two variables using the autoregressive distributive lag approach to cointegration suggested by Pesaran "et al." We use the Granger non-causality test procedure developed by Toda and Yamamoto, which uses a vector autoregression model to test for the causal link between the two. Evidence of cointegration is sufficient to establish a long-run relationship between government expenditure and income. However, support for Wagner's law would require unidirectional causality from income to government expenditure. Therefore, cointegration should be seen as a necessary condition for Wagner's law, but not sufficient. This research does find a long-run relationship between real "per capita" government expenditure and real "per capita" income. Results for the short-run causality find bidirectional causality. On the basis of empirical results in this paper, one may tentatively conclude that Wagner's law finds no support in South Africa. Copyright (c) 2008 The Author. Journal compilation (c) 2008 Economic Society of South Africa.

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Bibliographic Info

Article provided by Economic Society of South Africa in its journal South African Journal of Economics.

Volume (Year): 76 (2008)
Issue (Month): 4 (December)
Pages: 596-606

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Handle: RePEc:bla:sajeco:v:76:y:2008:i:4:p:596-606

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Cited by:
  1. Kojo Menyah & Yemane Wolde-Rufael, 2012. "Wagner'S Law Revisited: A Note From South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 80(2), pages 200-208, 06.
  2. Durevall, Dick & Henrekson, Magnus, 2011. "The futile quest for a grand explanation of long-run government expenditure," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 708-722, August.
  3. James Alm & Abel Embaye, 2011. "Explaining the Growth of Government Spending in South Africa," Working Papers 1105, Tulane University, Department of Economics.
  4. Alfred Wu & Mi Lin, 2012. "Determinants of government size: evidence from China," Public Choice, Springer, vol. 151(1), pages 255-270, April.
  5. Alimi, R. Santos, 2013. "Testing Augmented Wagner’s Law for Nigeria Based on Cointegration and Error-Correction Modelling Techniques," MPRA Paper 52319, University Library of Munich, Germany.
  6. Mabugu, Ramos & Robichaud, Veronique & Maisonnave, Helene & Chitiga, Margaret, 2013. "Impact of fiscal policy in an intertemporal CGE model for South Africa," Economic Modelling, Elsevier, vol. 31(C), pages 775-782.
  7. Cosimo Magazzino, 2012. "The Nexus between Disaggregated Public Spending and GDP in the Euro Area," Economics Bulletin, AccessEcon, vol. 32(3), pages 2560-2579.

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