WAGNER'S LAW REVISITED: A NOTE FROM SOUTH AFRICA

Abstract

AbstractThe aim of this note is to reassess the validity of Wagner's law for South Africa for the period 1950‐2007 using cointegration and causality tests. The evidence shows causality running from income to government expenditure, thus supporting the Wagnerian proposition of an expanding public sector. Using five different long‐run estimators, we found that the size of South Africa's public sector was positively and significantly related to South Africa's national income. The elasticity ranges from 1.12 to 1.57, implying that a 1% increase in income leads to a 1.12‐1.57% increase in government expenditure.