Growth in Public Spending and Economic Activity in Cameroon: Keynes versus Wagner

Abstract

Economic literature postulates that there are two opposed traditional approaches to the relationship between public spending and economic activity. The Keynesian hypothesis posts that public spending is an exogenous instrument of economic policy that can boost economic activity, while Wagner's, equally known as "Wagner's law", considers them rather as an endogenous factor resulting from the process of economic development. This paper empirically tests these two hypotheses in the case of Cameroon over the period 1977-2016. The empirical analysis makes use of the Bounds Test approach of co-integration proposed by Pesaran et al., (2001) applied to an error-correcting model and causality tests by Toda and Yamamoto (1995). The main results indicate that there exists a long-term relationship between public spending and economic activity and, a causality moving from economic activity to public spending, thus validating Wagner's law in the case of Cameroon.