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Testing Wagner's Law at Different Stages of Economic Development - A Historical Analysis of Five Western European Countries

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Using historical data, we test the validity of Wagner's law of increasing state activity at different stages of economic development for five industrialized European countries: the United Kingdom, Denmark, Sweden, Finland and Italy. In order to investigate the coherence between Wagner's law and development stage, we classify every country into three individual stages of income development and apply advanced cointegration and vector error correction analyses. In line with Wagner's hypothesis, our findings show that the relationship between public spending and economic growth has weakened with an advanced stage of development. All countries support the notion that Wagner's law in its pure form may have reached its limit in recent decades.

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File URL: http://www.iew.uni-osnabrueck.de/repec/iee/wpaper/13451929_WP_91.pdf
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Paper provided by Institute of Empirical Economic Research in its series Working Papers with number 91.

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Length: 34
Date of creation: 08 Aug 2012
Date of revision:
Handle: RePEc:iee:wpaper:wp0091

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Keywords: Wagner's law; government expenditure; economic development; cointegration;

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  1. Oxley, Les, 1994. "Cointegration, Causality and Wagner's Law: A Test for Britain 1870-1913," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(3), pages 286-98, August.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-72, May.
  3. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
  4. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1, July.
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