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Wagner’s Law Revisited: Cointegration and Causality tests for New Zealand

  • Saten Kumar

    (Department of Business Economics, Auckland University of Technology)

  • Don J. Webber

    ()

    (Department of Business Economics, Auckland University of Technology and Department of Economics, UWE, Bristol)

  • Scott Fargher

    (Department of Business Economics, Auckland University of Technology)

Registered author(s):

    Wagner’s Law states that the share of government expenditure in GNP will increase with economic development; many associated empirical studies substitute GNP with GDP. This paper presents an empirical investigation into the validity of Wagner’s Law for New Zealand over the period 1960-2007 and compares the results obtained using these two measures of output. Application of the autoregressive distributed lag bounds test suggests a cointegrating relationship between either output measure and the share of government spending, and further application of General to Specific, Engle and Granger, Phillip Hansen’s Fully Modified Ordinary Least Squares and Johansen’s time series techniques illustrate statistical robustness and an income elasticity between 0.56 and 0.84. The results suggest that output measures Granger-cause the share of government expenditure in the long run, thereby providing support for Wagner’s Law, and these results are stable irrespective of the chosen output measure.

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    File URL: http://carecon.org.uk/DPs/0917.pdf
    File Function: First version, 2009
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    Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0917.

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    Length: 11 pages
    Date of creation: Sep 2009
    Date of revision:
    Handle: RePEc:uwe:wpaper:0917
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    Web page: http://www1.uwe.ac.uk/bl/research/bristoleconomics.aspx

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    1. Tsangyao Chang & WenRong Liu & Steven Caudill, 2004. "A re-examination of Wagner's law for ten countries based on cointegration and error-correction modelling techniques," Applied Financial Economics, Taylor & Francis Journals, vol. 14(8), pages 577-589.
    2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    3. Sinha, Dipendra, 2007. "Does the Wagner’s Law hold for Thailand? A Time Series Study," MPRA Paper 2560, University Library of Munich, Germany.
    4. Alfonso Arpaia & Alessandro Turrini, 2008. "Government expenditure and economic growth in the EU: long-run tendencies and short-term adjustment," European Economy - Economic Papers 2008 - 2015 300, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Dimitrios Sideris, 2007. "Wagner's Law in 19th Century Greece: A Cointegration and Causality Analysis," Working Papers 64, Bank of Greece.
    6. Bharat Kolluri & Michael Panik & Mahmoud Wahab, 2000. "Government expenditure and economic growth: evidence from G7 countries," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 1059-1068.
    7. Felicity C Barker & Robert A Buckle & Robert W St Clair, 2008. "Roles of Fiscal Policy in New Zealand," Treasury Working Paper Series 08/02, New Zealand Treasury.
    8. Ying-Foon Chow & John Cotsomitis & Andy Kwan, 2002. "Multivariate cointegration and causality tests of Wagner's hypothesis: evidence from the UK," Applied Economics, Taylor & Francis Journals, vol. 34(13), pages 1671-1677.
    9. Iris Claus & Aaron Gill & Boram Lee & Nathan McLellan, 2006. "An empirical investigation of fiscal policy in New Zealand," Treasury Working Paper Series 06/08, New Zealand Treasury.
    10. Oxley, Les, 1994. "Cointegration, Causality and Wagner's Law: A Test for Britain 1870-1913," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(3), pages 286-98, August.
    11. Tsangyao Chang, 2002. "An econometric test of Wagner's law for six countries based on cointegration and error-correction modelling techniques," Applied Economics, Taylor & Francis Journals, vol. 34(9), pages 1157-1169.
    12. M. I. Ansari & D. V. Gordon & C. Akuamoah, 1997. "Keynes versus Wagner: public expenditure and national income for three African countries," Applied Economics, Taylor & Francis Journals, vol. 29(4), pages 543-550.
    13. Anisul Islam, 2001. "Wagner's law revisited: cointegration and exogeneity tests for the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 8(8), pages 509-515.
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