Testing Augmented Wagner’s Law for Nigeria Based on Cointegration and Error-Correction Modelling Techniques
AbstractWagner’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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 52319.
Date of creation: 2013
Date of revision:
public spending; economic growth; Wagner’s Law; error correction model;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E0 - Macroeconomics and Monetary Economics - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H6 - Public Economics - - National Budget, Deficit, and Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
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