Abstract
<p>This paper examines the validity of Wagner’s hypothesis in Kuwait looking specifically at government expenditures in health, education and infrastructure. Using time series analysis, the paper has found a long-run equilibrium relationship between GDP growth and the specified government expenditures. It, however, only found one causal relationship between development expenditures and GDP growth. As such, the paper proposes an expansion in government spending on development projects and reevaluates budget allocation in health and education.</p>
Highlights
Governments play an essential role in the process of economic development; the way they allocate their resources and govern their institutions has an effect on the economy that would even extend to future generations
This leads to the realization that governments should manage their budget with extreme scrutiny in order to insure that future generations will not be harmed by mismanagement
The results show that the Likelihood Ratio (LR), Final Prediction Error (FPE), Akaike Information Criterion (AIC), and Hannan-Quinn Information Criterion (HQ) values were at minimum with a lag order of 4, whereas the Schwarz Information Criterion (SIC) value was at a minimum with a lag order of 1
Summary
Governments play an essential role in the process of economic development; the way they allocate their resources and govern their institutions has an effect on the economy that would even extend to future generations. This leads to the realization that governments should manage their budget with extreme scrutiny in order to insure that future generations will not be harmed by mismanagement. In 1893, German economist Adolph Wagner proposed that a positive relationship exists between economic development and the size of government spending. This proposition has gained so much research it has later been seen as a hypothesis and even more so as a law. The past two decades have seen research that revisits Wagner’s hypothesis with empirical results that do not support the ‘law.’
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