The Validity of Wagner's Law in Greece during the Last Two Centuries

Abstract

In this paper we investigate the long-run relationship between national income and government spending by using Greek data from 1833 until 2010. We use five different formulations of Wagner’s law (the long run tendency for government expenditure to expand relative to economic growth) and find that empirical results are supportive for Wagner’s law. The data set span covers a period of almost two centuries; the long data set thus ensures the reliability of our results in terms of statistical and economic conclusions. Furthermore, the data set covers the early periods of development of the Greek economy, a period of growth, industrialisation and modernisation of the economy, conditions which should be conducive to Wagner’s law. Our analysis provides evidence of long run relationship between government spending and national income, while the Granger causality tests indicate that causality runs from the national income to spending. Moreover we include tests for structural changes to take into account regime changes that occur over time.