Testing Wagner’s Law on Public Expenditure and Economic Growth in Zimbabwe (1990–2020)

Time series analysis has gained popularity in the investigation of the relationship between public spending and gross domestic product (GDP) growth, with Granger’s causality test technique being the most popular. The study objective was to analyze the impact of government expenditure on economic growth in Zimbabwe for the period 1990 to 2020 by testing Wagner’s law on public expenditure. The study used the Ordinary Least Squares (OLS) method. Results indicate that capital expenditure (CE) was positive and highly significant at 1%; social sector expenditure (SSE) was negative and weakly significant at the 10% level, while inflation (INF) was negative and highly significant at the 1% level. The study results revealed that capital expenditure has a positive impact on economic growth, while inflation and social sector expenditure have a negative growth; hence it is growth retarding. However, government consumption expenditure (GCE) was found to be insignificant in the study period. In this study’s empirical literature review, it was discovered that Wagner’s law had stronger support than Keynesian theory. For economic growth to occur in Zimbabwe, the government should encourage much capital investment so as to increase output, hence an increase in the nation’s income, thus leading to increased government expenditure in the future. Investment in capital leads to an increase in the country’s GDP.