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An Application of Wagner’s Law in the Indian Economy: 1970-71 to 2010-11

Author

Listed:
  • Rahul Ranjan

    ()

  • Abhishek K. Chintu

    () ("Dimitrie Cantemir" Christian University)

Abstract

Wagner’s Law is the first model of public spending in the history of public finance. Wagner’s ‘law’ of expanding state activity, is the proposition that there is a long run propensity for government expenditure to grow relative to national income. This paper tests Wagner’s Law for India, using annual time series data covering the period 1970-2010. To estimate the long-run relationship between government expenditures and output. Empirical analysis is performed by using cointegration test, error correction model (ECM) and Granger causality. The results test indicated that economic growth is cointegrated with size of government. So, economic growth is the long- run forcing variable on size of government. Also Granger causality test show that a unidirectional causal flows from economic growth to size of government. On the other hands, Wagner’s law is confirmed in India during the period of this study.

Suggested Citation

  • Rahul Ranjan & Abhishek K. Chintu, 2013. "An Application of Wagner’s Law in the Indian Economy: 1970-71 to 2010-11," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(4), pages 138-144, December.
  • Handle: RePEc:khe:journl:v:5:y:2013:i:4:p:138-144
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    File URL: http://orizonturi.ucdc.ro/arhiva/2013_khe_4_pdf/khe_vol_5_iss_4_138to144.pdf
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    References listed on IDEAS

    as
    1. John Loizides & George Vamvoukas, 2005. "Government expenditure and economic growth: Evidence from trivariate causality testing," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 125-152, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    India; Wagner’s Law; Economic Growth; Public Finance and Government Expenditure;

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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