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Examining the Validity of Wagner's Law versus Keynesian Hypothesis: Evidence from Turkey's Economy

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  • Özcan Karahan
  • Olcay Çolak

Abstract

The direction of the causality relationship between public expenditures and economic growth is one of the most controversial issues of the literature, which also causes great disagreements in the design process of economic policies. There are two approaches to this subject, which are opposite each other and called "Wagner's Law" and "Keynesian Hypothesis". This paper aims to examine the validity of Wagner's law and Keynesian proposition in Turkey using Autoregressive Distributed Lag (ARDL) model over the period of 1998-2016. The findings supported the "Keynesian Hypothesis", which advocates a one-way causality relationship from public spending to national output. More specifically, the results of the study showed that the effect of public expenditures on economic growth was positive in the short term and negative in the long term. From an economic policy standpoint, it can be argued that policymakers can promote Turkish economic growth through expansionary fiscal policies in the short run. JEL Codes - E62; H50; O40; C22

Suggested Citation

  • Özcan Karahan & Olcay Çolak, 2019. "Examining the Validity of Wagner's Law versus Keynesian Hypothesis: Evidence from Turkey's Economy," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 66(1), pages 117-130, March.
    • Handle: RePEc:aic:saebjn:v:66:y:2019:i:1:p:117-130:n:132
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    File URL: http://saeb.feaa.uaic.ro/index.php/saeb/article/view/1112
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    References listed on IDEAS

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    Cited by:

    1. Yusuf Shamsuddeen Nadabo & Suleiman Maigari Salisu, 2021. "Investigating the Expenditure-Economic Growth Nexus in Nigeria the Presence of Structural Breaks: A Nonlinear ARDL Cointegration Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(09), pages 146-153, September.

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    More about this item

    Keywords

    fiscal policy; public expenditures; economic growth; bounds test approach;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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