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The long-run tendency of government expenditure: a semi-parametric modelling approach

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  • Suzanna-Maria Paleologou

    () (Aristotle University of Thessaloniki)

Abstract

Abstract The empirical findings concerning the validity of Wagner’s Law seem to depend on both economic fundamentals and modelling choices. Using a semi-parametric model and data for a sample of five developed and five developing countries during the period 1960–2007, we find that, for the developing countries, Wagner’s Law holds regardless of whether the relationship between government expenditures and per capita income is modelled in a linear or a nonlinear fashion. For the developed countries, however, model specification matters: If a linear specification is a priori chosen, then we find support of Wagner’s Law, while a nonlinear specification implies on the contrary the opposite result. Hence, model misspecification could have led to incorrectly accept Wagner’s law for the developed countries.

Suggested Citation

  • Suzanna-Maria Paleologou, 2016. "The long-run tendency of government expenditure: a semi-parametric modelling approach," Empirical Economics, Springer, vol. 50(3), pages 753-776, May.
  • Handle: RePEc:spr:empeco:v:50:y:2016:i:3:d:10.1007_s00181-015-0959-2
    DOI: 10.1007/s00181-015-0959-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Government expenditure; Semi-parametric specification; Wagner’s Law;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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