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Testing Augmented Wagner’s Law for Nigeria Based on Cointegration and Error-Correction Modelling Techniques

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  • Alimi, R. Santos

Abstract

Wagner’s Law is the first model of public spending in the history of public finance. The study tests the validity of Wagner’s Law that there is a long-run tendency for public expenditure to grow relative to national income. This implies that public expenditure can be treated as an endogenous factor, not a cause of growth in national income. In contrast, Keynesian hypothesis treats public expenditure as an exogenous factor. “Augmented” version of Wagner’s Law, where public deficit appears as further explanatory variable, is also investigated. Assessing the empirical evidence of these hypotheses in Nigeria, for the period 1970-2012, the study employed Johansen Cointegration Techniques with its associated Error Correction Model for the short run dynamics. We found bi-directional causal relation for the short run dynamics for five out of seven formulations while the long run empirical evidence seems to be most favourable to Wagner’s hypothesis rather than the Keynesian one, therefore suggesting that causality run from real income to government expenditure.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52319.

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Date of creation: 2013
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Handle: RePEc:pra:mprapa:52319

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Keywords: public spending; economic growth; Wagner’s Law; error correction model;

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  1. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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  3. 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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