An Application of Wagner’s Law in the Indian Economy: 1970-71 to 2010-11
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.
Volume (Year): 5 (2013)
Issue (Month): 4 (December)
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- 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.
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