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Increasing public expenditures: Wagner's law in OECD countries

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  • Lamartina, Serena
  • Zaghini, Andrea

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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Bibliographic Info

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

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Date of creation: 2008
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Handle: RePEc:zbw:cfswop:200813

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Keywords: Fiscal Policy; Wagner's Law; Panel Cointegration;

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  1. Javier Andrés & Rafael Doménech & Antonio Fatás, 2007. "The stabilizing role of government size," Banco de Espa�a Working Papers 0710, Banco de Espa�a.
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  8. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
  9. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
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  17. Peacock, Alan & Scott, Alex, 2000. " The Curious Attraction of Wagner's Law," Public Choice, Springer, vol. 102(1-2), pages 1-17, January.
  18. Afonso, António & Schuknecht, Ludger & Tanzi, Vito, 2003. "Public sector efficiency: an international comparison," Working Paper Series 0242, European Central Bank.
  19. John Thornton, 1999. "Cointegration, causality and Wagner's Law in 19th century Europe," Applied Economics Letters, Taylor & Francis Journals, vol. 6(7), pages 413-416.
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Cited by:
  1. Durevall, Dick & Henrekson, Magnus, 2010. "The Futile Quest for a Grand Explanation of Long-Run Government Expenditure," Working Paper Series 818, Research Institute of Industrial Economics, revised 28 Oct 2010.
  2. Magazzino, Cosimo, 2011. "The nexus between public expenditure and inflation in the Mediterranean countries," MPRA Paper 28493, University Library of Munich, Germany.
  3. 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.
  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. Magazzino, Cosimo, 2010. "Wagner's law and Italian disaggregated public spending: some empirical evidences," MPRA Paper 26662, University Library of Munich, Germany.
  6. Arze del Granado, F. Javier & Martinez-Vazquez, Jorge & McNab, Robert M., 2012. "Decentralized Governance and Preferences for Public Goods," MPRA Paper 42459, University Library of Munich, Germany.
  7. Cosimo Magazzino, 2012. "The Nexus between Disaggregated Public Spending and GDP in the Euro Area," Economics Bulletin, AccessEcon, vol. 32(3), pages 2560-2579.

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