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A Time-Series Analysis of the Relationship Between Government Expenditure and Gdp in Canada

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  • Panayiotis C. Afxentiou

    (University of Calgary)

  • Apostolos Serletis

    (University of Calgary)

Abstract

The objective of this article is to test statistically in the Granger-Sims sense for the existence of causality between government expenditure and gross domestic product (GDP) in Canada over the period 1947 to 1986. From a brief examination of the prevalent theories of government growth, Wagner's law emerges as the most comprehensive hypothesis and is subsequently subjected to causality tests. Unequivocally, Wagner's law is rejected, but the reverse causality, which runs from government spending to GDP, is rejected as well, thus contradicting the claims of effective fiscal activism that emanate from the Keynesian paradigm. These results are indicative of the complexity of forces that influence government behavior and should be viewed not negatively, but rather as a challenge for more imaginative future research in this highly important area.

Suggested Citation

  • Panayiotis C. Afxentiou & Apostolos Serletis, 1991. "A Time-Series Analysis of the Relationship Between Government Expenditure and Gdp in Canada," Public Finance Review, , vol. 19(3), pages 316-333, July.
    • Handle: RePEc:sae:pubfin:v:19:y:1991:i:3:p:316-333
    DOI: 10.1177/109114219101900303
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    References listed on IDEAS

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    Cited by:

    1. Tsangyao Chang & WenRong Liu & Steven Caudill, 2004. "A re-examination of Wagner's law for ten countries based on cointegration and error-correction modelling techniques," Applied Financial Economics, Taylor & Francis Journals, vol. 14(8), pages 577-589.
    2. Chiung-Ju Huang, 2006. "Government Expenditures In China And Taiwan: Do They Follow Wagner¡¯S Law?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 31(2), pages 139-148, December.
    3. Arvin, Mak B. & Pradhan, Rudra P. & Nair, Mahendhiran S., 2021. "Are there links between institutional quality, government expenditure, tax revenue and economic growth? Evidence from low-income and lower middle-income countries," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 468-489.
    4. Ferris, J. Stephen & Voia, Marcel C., 2015. "The effect of federal government size on private economic performance in Canada: 1870–2011," Economic Modelling, Elsevier, vol. 49(C), pages 172-185.
    5. 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.
    6. Harrison, Ann E. & Rodriguez-Clare, Andres, 2009. "Trade, Foreign Investment, and Industrial Policy," MPRA Paper 15561, University Library of Munich, Germany.
    7. Stoyan Tanchev, 2021. "Economic growth and government expenditure – evidence of Wagner’s Law in some EU countries," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 72-87.
    8. Osman Suliman & Ghirmay Ghebreysus, 2001. "Determinants of Privatisation in Selected Sub-Saharan African Countries: Is Privatisation Politically Induced?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 26(2), pages 33-48, December.
    9. J. Stephen Ferris & Marcel-Cristian Voia, 2014. "Does Aggregate Government Size Effect Private Economic Performance in Canada?," Carleton Economic Papers 14-13, Carleton University, Department of Economics.
    10. Gabriella Legrenzi & Costas Milas, 2002. "The Role of Omitted Variables in Identifying a Long-run Equilibrium Relationship for the Italian Government Growth," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(4), pages 435-449, August.
    11. Mahmoud Wahab, 2004. "Economic growth and government expenditure: evidence from a new test specification," Applied Economics, Taylor & Francis Journals, vol. 36(19), pages 2125-2135.
    12. Nayak, Dinesh Kumar & Hazarika, Bhabesh, 2022. "Linkage between Income and Government Expenditure at Indian Sub-nationals: A Second Generation Panel Co-integration Techniques," Working Papers 22/374, National Institute of Public Finance and Policy.
    13. Bharat Kolluri & Mahmoud Wahab, 2007. "Asymmetries in the conditional relation of government expenditure and economic growth," Applied Economics, Taylor & Francis Journals, vol. 39(18), pages 2303-2322.
    14. E. Chuke Nwude & Tarila Boloupremo, 2018. "Public Expenditure and National Income: Time Series Evidence from Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 8(1), pages 71-76.
    15. Magazzino, Cosimo, 2010. "Wagner's law and Italian disaggregated public spending: some empirical evidences," MPRA Paper 26662, University Library of Munich, Germany.

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