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Increasing Public Expenditures: Wagner’s Law in OECD Countries

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Author Info
Serena Lamartina (European Central Bank)
Andrea Zaghini () (Banca d’Italia & Center for Financial Studies, Frankfurt)

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Abstract

The paper proposes a panel cointegration analysis of the joint development of government expenditures and economic growth in 23 OECD countries. The empirical evidence provides indication of a structural positive correlation between public spending and per-capita GDP which is consistent with the so-called Wagner’s law. A long-run elasticity larger than one suggests a more than proportional increase of government expenditures with respect to economic activity. In addition, according to the spirit of the law, we found that the correlation is usually higher in countries with lower per-capita GDP, suggesting that the catching-up period is characterized by a stronger development of government activities with respect to economies in a more advanced state of development.

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Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number 2008/13.

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Length: 25 pages
Date of creation: Apr 2008
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Handle: RePEc:cfs:cfswop:wp200813

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Related research
Keywords: Fiscal Policy Wagner’s Law Panel Cointegration

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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  1. Persson, Torsten & Tabellini, Guido, 1999. "The Size and Scope of Government: Comparative Politics With Rational Politicians," CEPR Discussion Papers 2051, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Gian Maria Milesi-Ferretti & Roberto Perotti & Massimo Rostagno, 2002. "Electoral Systems And Public Spending," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 609-657, May. [Downloadable!] (restricted)
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  3. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December. [Downloadable!] (restricted)
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  4. Cameron A. Shelton, 2007. "The Size and Composition of Government Expenditure," Wesleyan Economics Working Papers 2007-002, Wesleyan University, Department of Economics. [Downloadable!]
  5. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October. [Downloadable!] (restricted)
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  6. António Afonso & Ludger Schuknecht & Vito Tanzi, 2005. "Public sector efficiency: An international comparison," Public Choice, Springer, vol. 123(3), pages 321-347, June. [Downloadable!] (restricted)
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  7. Shelton, Cameron A., 2007. "The size and composition of government expenditure," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2230-2260, December. [Downloadable!] (restricted)
  8. Peacock, Alan & Scott, Alex, 2000. " The Curious Attraction of Wagner's Law," Public Choice, Springer, vol. 102(1-2), pages 1-17, January. [Downloadable!] (restricted)
  9. Bassanini, Andrea & Scarpetta, Stefano, 2002. "Does human capital matter for growth in OECD countries? A pooled mean-group approach," Economics Letters, Elsevier, vol. 74(3), pages 399-405, February. [Downloadable!] (restricted)
  10. Islam, Anisul M, 2001. "Wagner's Law Revisited: Cointegration and Exogeneity Tests for the USA," Applied Economics Letters, Taylor and Francis Journals, vol. 8(8), pages 509-15, August. [Downloadable!] (restricted)
  11. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October. [Downloadable!] (restricted)
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  12. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312. [Downloadable!]
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  13. Javier Andrés & Rafael Doménech & Antonio Fatás, 2007. "The stabilizing role of government size," Banco de España Working Papers 0710, Banco de España. [Downloadable!]
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  14. Thornton, John, 1999. "Cointegration, Causality and Wagner's Law in 19th Century Europe," Applied Economics Letters, Taylor and Francis Journals, vol. 6(7), pages 413-16, July. [Downloadable!] (restricted)
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