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Wagner’s Law Revisited: Cointegration and Causality tests for New Zealand

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Author Info

  • Saten Kumar

    (Department of Business Economics, Auckland University of Technology)

  • Don J. Webber

    ()
    (Department of Business Economics, Auckland University of Technology and Department of Economics, UWE, Bristol)

  • Scott Fargher

    (Department of Business Economics, Auckland University of Technology)

Abstract

Wagner’s Law states that the share of government expenditure in GNP will increase with economic development; many associated empirical studies substitute GNP with GDP. This paper presents an empirical investigation into the validity of Wagner’s Law for New Zealand over the period 1960-2007 and compares the results obtained using these two measures of output. Application of the autoregressive distributed lag bounds test suggests a cointegrating relationship between either output measure and the share of government spending, and further application of General to Specific, Engle and Granger, Phillip Hansen’s Fully Modified Ordinary Least Squares and Johansen’s time series techniques illustrate statistical robustness and an income elasticity between 0.56 and 0.84. The results suggest that output measures Granger-cause the share of government expenditure in the long run, thereby providing support for Wagner’s Law, and these results are stable irrespective of the chosen output measure.

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File URL: http://carecon.org.uk/DPs/0917.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0917.

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Length: 11 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:uwe:wpaper:0917

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Postal: Frenchay Campus, Coldharbour Lane, Bristol BS16 1QY
Phone: 0117 328 3610
Web page: http://www1.uwe.ac.uk/bl/research/bristoleconomics.aspx
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Keywords: Government spending; GNP; GDP; Cointegration; Granger causality;

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References

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  1. Tanzi,Vito & Schuknecht,Ludger, 2000. "Public Spending in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521664103, October.
  2. Alfonso Arpaia & Alessandro Turrini, 2008. "Government expenditure and economic growth in the EU: long-run tendencies and short-term adjustment," European Economy - Economic Papers 300, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Dimitrios Sideris, 2007. "Wagner's Law in 19th Century Greece: A Cointegration and Causality Analysis," Working Papers 64, Bank of Greece.
  4. Tsangyao Chang & WenRong Liu & Steven Caudill, 2004. "A re-examination of Wagner's law for ten countries based on cointegration and error-correction modelling techniques," Applied Financial Economics, Taylor & Francis Journals, vol. 14(8), pages 577-589.
  5. Iris Claus & Aaron Gill & Boram Lee & Nathan McLellan, 2006. "An empirical investigation of fiscal policy in New Zealand," Treasury Working Paper Series 06/08, New Zealand Treasury.
  6. Anisul Islam, 2001. "Wagner's law revisited: cointegration and exogeneity tests for the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 8(8), pages 509-515.
  7. M. I. Ansari & D. V. Gordon & C. Akuamoah, 1997. "Keynes versus Wagner: public expenditure and national income for three African countries," Applied Economics, Taylor & Francis Journals, vol. 29(4), pages 543-550.
  8. 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.
  9. Tsangyao Chang, 2002. "An econometric test of Wagner's law for six countries based on cointegration and error-correction modelling techniques," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1157-1169.
  10. Sinha, Dipendra, 2007. "Does the Wagner’s Law hold for Thailand? A Time Series Study," MPRA Paper 2560, University Library of Munich, Germany.
  11. Felicity C Barker & Robert A Buckle & Robert W St Clair, 2008. "Roles of Fiscal Policy in New Zealand," Treasury Working Paper Series 08/02, New Zealand Treasury.
  12. Bharat Kolluri & Michael Panik & Mahmoud Wahab, 2000. "Government expenditure and economic growth: evidence from G7 countries," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 1059-1068.
  13. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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Citations

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Cited by:
  1. Cosimo Magazzino, 2012. "The Nexus between Disaggregated Public Spending and GDP in the Euro Area," Economics Bulletin, AccessEcon, vol. 32(3), pages 2560-2579.
  2. Don J. Webber & Saten Kumar, 2011. "Australasian money demand stability:Application of structural break tests," Working Papers 1101, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  3. Asuman Oktayer & Nagihan Oktayer, 2013. "Testing Wagner´s Law for Turkey: Evidence from a Trivariate Causality Analysis," Prague Economic Papers, University of Economics, Prague, vol. 2013(2), pages 284-301.
  4. Magazzino, Cosimo, 2012. "Wagner versus Keynes: Public spending and national income in Italy," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 890-905.
  5. Kumar, Saten & Shahbaz, Muhammad, 2010. "Coal Consumption and Economic Growth Revisited: Structural Breaks, Cointegration and Causality Tests for Pakistan," MPRA Paper 26151, University Library of Munich, Germany.
  6. Facchini, François & Melki, Mickaël, 2013. "Efficient government size: France in the 20th century," European Journal of Political Economy, Elsevier, vol. 31(C), pages 1-14.
  7. Magazzino, Cosimo, 2010. "Wagner's law and Italian disaggregated public spending: some empirical evidences," MPRA Paper 26662, University Library of Munich, Germany.
  8. Magazzino, Cosimo, 2010. "Wagner's law and augmented Wagner's law in EU-27. A time-series analysis on stationarity, cointegration and causality," MPRA Paper 26668, University Library of Munich, Germany.
  9. Saten Kumar, 2011. "Estimating export demand equations in selected Asian countriess," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 4(1), pages 5-16, February.

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