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Wagner’s Law vs. Keynesian Hypothesis: Dynamic Impacts

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  • Ciro Bazán

    (Economics Programs, Faculty of Business Sciences, Universidad San Ignacio de Loyola, Lima 15024, Peru)

  • Víctor Josué Álvarez-Quiroz

    (Economics Programs, Faculty of Business Sciences, Universidad San Ignacio de Loyola, Lima 15024, Peru)

  • Yennyfer Morales Olivares

    (Economics Programs, Faculty of Business Sciences, Universidad San Ignacio de Loyola, Lima 15024, Peru)

Abstract

This study analyzes the dynamics between public expenditure and economic growth in Peru for 1980Q1–2021Q4. We used quarterly time series of real GDP, public consumption expenditure, public expenditure, and the share of public expenditure to output. The variables were transformed into natural logarithms, wherein only the logarithm of public expenditure to output ratio is stationary and the others are non-stationary I 1 . The study of stationary time series assesses whether Wagner’s law, the Keynesian hypothesis, the feedback hypothesis, or the neutrality hypothesis is valid for the Peruvian case according to Granger causality. We found cointegration between real GDP and public expenditure, and public consumption expenditure and real GDP. Estimating error correction and autoregressive distributed lag models, we concluded that Wagner’s law and the Keynesian hypothesis are valid in the Peruvian case, expressed as dynamic processes that allow us to obtain short-run and long-run impacts, permitting the mutual sustainability of economic growth and public expenditure.

Suggested Citation

  • Ciro Bazán & Víctor Josué Álvarez-Quiroz & Yennyfer Morales Olivares, 2022. "Wagner’s Law vs. Keynesian Hypothesis: Dynamic Impacts," Sustainability, MDPI, vol. 14(16), pages 1-25, August.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:16:p:10431-:d:894595
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