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Did fiscal institutions affect Wagner's law in Italy during 1951-2009 period? An empirical analysis

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  • Cristian Barra
  • Giovanna Bimonte
  • Pietro Spennati

Abstract

In this article, we test Wagner's assumption of the one-sided directional flow moving from economic growth to public spending in Italy for the 1951-2009 period. We pay particular attention to the impact of certain regime shifts related to changes in Italian budget regulations and procedures and the relevance of fiscal institutions to the fiscal performance equation, i.e. the public spending-national income nexus. The Error Correction Model is estimated to measure short-run dynamic effects and the long-run equilibrium between the two time series. The empirical evidence suggests that Wagner's law is supported. In regard to policy implications, we find that public spending reacted less to positive changes in economic growth when the strengthening of the Ministry of Finance occurred in 1997 (Ciampi's reform). Some sensitivity analyses confirm our empirical evidence.

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  • Cristian Barra & Giovanna Bimonte & Pietro Spennati, 2015. "Did fiscal institutions affect Wagner's law in Italy during 1951-2009 period? An empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 47(59), pages 6409-6424, December.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:59:p:6409-6424
    DOI: 10.1080/00036846.2015.1071475
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    Cited by:

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    2. Philip Arestis & Hüseyin Şen & Ayşe Kaya, 2021. "On the linkage between government expenditure and output: empirics of the Keynesian view versus Wagner’s law," Economic Change and Restructuring, Springer, vol. 54(2), pages 265-303, May.
    3. Ampah Isaac Kwesi & Kotosz Balázs, 2016. "Wagner versus Keynes: the causal nexus between Government Expenditures and Economic Growth: An Empirical study of Burkina Faso," Journal of Heterodox Economics, Sciendo, vol. 3(2), pages 74-101, December.
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    5. Ali, Wajid & Munir, Kashif, 2016. "Testing Wagner versus Keynesian Hypothesis for Pakistan: The Role of Aggregate and Disaggregate Expenditure," MPRA Paper 74570, University Library of Munich, Germany.
    6. 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.

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