IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v59y2016icp23-31.html
   My bibliography  Save this article

Testing threshold cointegration in Wagner's Law: The role of military spending

Author

Listed:
  • Cavicchioli, Maddalena
  • Pistoresi, Barbara

Abstract

This paper analyses historical data since the mid-19th century to find support for Wagner's Law in the Italian economy. Unlike previous studies, we accommodate possible nonlinear asymmetric effects of government spending and GDP towards their long-run equilibrium. The results reveal a threshold cointegrating relationship between the two variables with significantly different error correction adjustments in normal and extreme regimes. A long-run tendency for the public sector to grow relative to GDP from 1862 to 2009 is observed only when nonlinearities generated by temporary higher military spending during wars are take into account.

Suggested Citation

  • Cavicchioli, Maddalena & Pistoresi, Barbara, 2016. "Testing threshold cointegration in Wagner's Law: The role of military spending," Economic Modelling, Elsevier, vol. 59(C), pages 23-31.
  • Handle: RePEc:eee:ecmode:v:59:y:2016:i:c:p:23-31
    DOI: 10.1016/j.econmod.2016.06.011
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999316301742
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Tanzi,Vito & Schuknecht,Ludger, 2000. "Public Spending in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521662918.
    2. Durevall, Dick & Henrekson, Magnus, 2011. "The futile quest for a grand explanation of long-run government expenditure," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 708-722, August.
    3. Hansen, Bruce E. & Seo, Byeongseon, 2002. "Testing for two-regime threshold cointegration in vector error-correction models," Journal of Econometrics, Elsevier, vol. 110(2), pages 293-318, October.
    4. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
    5. repec:dau:papers:123456789/6970 is not listed on IDEAS
    6. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July.
    7. Toniolo, Gianni (ed.), 2013. "The Oxford Handbook of the Italian Economy Since Unification," OUP Catalogue, Oxford University Press, number 9780199936694.
    8. Lindert Peter H., 1994. "The Rise of Social Spending, 1880-1930," Explorations in Economic History, Elsevier, vol. 31(1), pages 1-37, January.
    9. Jan Kuckuck, 2014. "Testing Wagner's Law at Different Stages of Economic Development," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(1), pages 128-168, March.
    10. Ghate, Chetan & Zak, Paul J., 2002. "Growth of government and the politics of fiscal policy," Structural Change and Economic Dynamics, Elsevier, vol. 13(4), pages 435-455, December.
    11. Elliott, Graham, 1999. "Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-783, August.
    12. North, Douglass C., 1985. "The growth of government in the United States: An economic historian's perspective," Journal of Public Economics, Elsevier, vol. 28(3), pages 383-399, December.
    13. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    14. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    15. Henrekson, Magnus, 1993. "Wagner's Law--A Spurious Relationship?," Public Finance = Finances publiques, , vol. 48(3), pages 406-415.
    16. Barro, Robert J, 1981. "Output Effects of Government Purchases," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1086-1121, December.
    17. Basci Erdem & Caner Mehmet, 2005. "Are Real Exchange Rates Nonlinear or Nonstationary? Evidence from a New Threshold Unit Root Test," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(4), pages 1-21, December.
    18. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    19. 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.
    20. Magazzino, Cosimo, 2012. "Wagner versus Keynes: Public spending and national income in Italy," Journal of Policy Modeling, Elsevier, vol. 34(6), pages 890-905.
    21. Narayan, Seema & Rath, Badri Narayan & Narayan, Paresh Kumar, 2012. "Evidence of Wagner's law from Indian states," Economic Modelling, Elsevier, vol. 29(5), pages 1548-1557.
    22. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
    23. 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 286-298, August.
    24. Paresh Kumar Narayan & Arti Prasad & Baljeet Singh, 2008. "A test of the Wagner's hypothesis for the Fiji islands," Applied Economics, Taylor & Francis Journals, vol. 40(21), pages 2793-2801.
    25. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    26. 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.
    27. Peacock, Alan & Scott, Alex, 2000. "The Curious Attraction of Wagner's Law," Public Choice, Springer, vol. 102(1-2), pages 1-17, January.
    28. Bohl, Martin T, 1996. "Some International Evidence on Wagner's Law," Public Finance = Finances publiques, , vol. 51(2), pages 185-200.
    29. Chevallier, Julien, 2011. "Evaluating the carbon-macroeconomy relationship: Evidence from threshold vector error-correction and Markov-switching VAR models," Economic Modelling, Elsevier, vol. 28(6), pages 2634-2656.
    30. Subervie, Julie, 2011. "Producer price adjustment to commodity price shocks: An application of threshold cointegration," Economic Modelling, Elsevier, vol. 28(5), pages 2239-2246, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Funashima, Yoshito & Hiraga, Kazuki, 2016. "Wagner's law, fiscal discipline, and intergovernmental transfer: Empirical evidence at the U.S. and German state levels," MPRA Paper 73551, University Library of Munich, Germany.
    2. repec:kap:itaxpf:v:24:y:2017:i:4:d:10.1007_s10797-017-9458-z is not listed on IDEAS

    More about this item

    Keywords

    Time series; Nonlinearity; Threshold Vector Error Correction; Public spending; Economic growth; Wagner's Law;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • H1 - Public Economics - - Structure and Scope of Government
    • H5 - Public Economics - - National Government Expenditures and Related Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:59:y:2016:i:c:p:23-31. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.