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Economic growth and government expenditure: evidence from a new test specification

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Author Info
Mahmoud Wahab
Abstract

A new test specification of Wagner's Law of Public Expenditure has been formulated. The aim is to disentangle the effects of accelerating and decelerating economic growth on growth in government expenditure. Two alternative proxies for the state of the economy are experimented with. The first defines the current state of the economy by relating it to its historical mean growth rate, while the second defines it relative to a pooled time-series/cross-sectional mean growth rate. This distinction is then explicitly incorporated into an error correction model that parameterizes the bivariate relation between government expenditure and economic growth for alternative OECD country groupings. The results suggest that government expenditure increases less than proportionately with accelerating economic growth and decreases more than proportionately with decelerating economic growth. There is only a limited support for Wagner's Law.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 19 (September)
Pages: 2125-2135
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Handle: RePEc:taf:applec:v:36:y:2004:i:19:p:2125-2135

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Abizadeh, Sohrab & Yousefi, Mahmood, 1988. "An empirical re-examination of Wagner's law," Economics Letters, Elsevier, vol. 26(2), pages 169-173. [Downloadable!] (restricted)
  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  3. Fölster, Stefan & Henrekson, Magnus, 1998. "Growth Effects of Government Expenditure and Taxation in Rich Countries," Working Paper Series 503, Research Institute of Industrial Economics, revised 20 Jun 2000. [Downloadable!]
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  4. Kolluri, Bharat R & Panik, Michael J & Wahab, Mahmoud S, 2000. "Government Expenditure and Economic Growth: Evidence from G7 Countries," Applied Economics, Taylor and Francis Journals, vol. 32(8), pages 1059-68, June. [Downloadable!] (restricted)
  5. Ahsan, Syed M & Kwan, Andy C C & Sahni, Balbir S, 1996. "Cointegration and Wagner's Hypothesis: Time Series Evidence for Canada," Applied Economics, Taylor and Francis Journals, vol. 28(8), pages 1055-58, August. [Downloadable!] (restricted)
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  1. Paresh Kumar Narayan & Ingrid Nielsen & Russell Smyth, 2006. "Panel Data, Cointegration, Causality And Wagner'S Law: Empirical Evidence From Chinese Provinces," Monash Economics Working Papers 01/06, Monash University, Department of Economics. [Downloadable!]
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