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Testing Wagner´s Law for Turkey: Evidence from a Trivariate Causality Analysis

  • Asuman Oktayer
  • Nagihan Oktayer
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    The purpose of this study is to analyse the relationship between government expenditure and economic growth in Turkey. The study tests the validity of Wagner´s law by applying autoregressive distributed lag (ARDL) cointegration technique using annual data over 1950-2010 period. In order to find out the possible impact of omitted variables, we first tested the standard bivariate versions of Wagner´s law. In the next step by including a third variable – inflation ratio - the analysis extended on a trivariate system. The findings of each testing procedure indicate that omitted variables matter. Since, while there exists no long-run relationship between the variables in the first step of the testing procedure, a long-run correlation is found in the second step. The differences of this paper from the earlier studies testing the Law for Turkey are that, the causal link is examined within a trivariate framework and non-interest government expenditure is considered instead of total government expenditures.

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    Article provided by University of Economics, Prague in its journal Prague Economic Papers.

    Volume (Year): 2013 (2013)
    Issue (Month): 2 ()
    Pages: 284-301

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    Handle: RePEc:prg:jnlpep:v:2013:y:2013:i:2:id:452:p:284-301
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