Wagner's Law Research Articles

The Linkage between Government Expenditure and GDP: An Empirical Investigation of Wagner's Law in the Jordanian Economy

The Linkage between Government Expenditure and GDP: An Empirical Investigation of Wagner's Law in the Jordanian Economy

Public Expenditure in the Fastest Growing and Emerging Market Economies in Africa: The Role of Institutional Quality

Emerging and fastest-growing markets in Africa are developing their financial environment to attract investors and position themselves as an upcoming generation of strong and influential markets. The subject of this study is public expenditure outlays used to stimulate economic activity in emerging markets in Africa. The purpose of this study is to isolate the main determinants of government spending and the role of institutional quality. The relevance lies in the significance of maintaining such expenditures at optimal levels to benefit the economy. The scientific novelty lies in the analysis of the main factors explaining government spending to support policy formulation in emerging markets. This study applied the autoregressive distributed lag (ARDL) model to test both long-term and short-term dynamics. Based on the results, the study demonstrated both joint and long-run causality between the selected variables and government expenditure. Short-term causality is not confirmed. The study concluded that the Wagner law still holds, in which economic growth is coupled with an increase in expenditure. The Economic freedom index is more effective in controlling government expenditure than the POLITY 2 variable. This study offers some policy implications.

The Linkage Between Government Expenditure and National Income: the Case of Bangladesh

Objective: This study examines the applicability of Keynesian and Wagner's law in terms of gross national expenditure (GNE) and gross national income (GNI) in Bangladesh. Theoretical Framework: According to Wagner's Law, a country's government spending rises in tandem with its national income. The opposite is true, according to the Keynesian Law, which claims that government spending increases GDP. Methodology: This study is a quantitative and secondary data based analysis. It makes use of time series data spanning the years 1981 to 2020. All variables' data were gathered from the World Bank's compilation of global development indicators. In order to exclude years with outlier data, the current study did not include variables' data from 1971 to 1980 (The abnormality occurred in 1971 for the war of liberty; in 1974 for the Famine and in 1975 for the political violence). Once the sequence of integration with ADF had been determined; the ARDL bounds testing technique and Granger causality test were used. Results and Discussion: According to the findings of the ARDL bounds test, there is a long-term correlation between government spending and gross domestic product. Government spending likely contributes significantly to the causes of national income, according to the slope coefficients from long-run equations. Granger causality findings show that government spending and national income have a one-way causal link but not the other way around. Research Implications: One possible explanation for this result is that recent government spending on development projects boost up the national income. Originality/Value: We contribute to the literature in two important ways. The first contribution is that we focus on more robust estimation methodologies. Unlike previous studies of Bangladesh context, we apply ARDL bounds test approach to co-integration. In addition to having advantageous small sample characteristics, the ARDL limits testing approach does not necessitate the same order of integration in the variables. With these considerations, this technique suits better in case of Bangladesh given that data would be of a small span. And second, we examined both of the Wagner’s Law and Keynesian Law for Bangladesh with two separate equations, unlike the previous studies on Bangladesh who investigated the Wagner’s equation only.

Exploring Wagner's Law in India: An Empirical Study of Economic Growth and Public Expenditure

In this research paper, we test the connections between public spending and economic growth in India by employing annual data from 1981-82 till 2019-20. We examine if there is a long-run relation between public spending and economic growth and then we try to understand the direction of causality between them by using six versions of Wagner's law along with an augmented version. The paper employs tests of stationarity, cointegration, granger causality and the vector error correction model for the analysis in all the versions. Results from these tests show that only some versions give support to validate Wagners' law in India over the sample period studied.

Government Expenditure and Economic Growth: A Comparative Analysis of Japan

Purpose: The aim of the study was to investigate the government expenditure and economic growth: a comparative analysis of Japan
 Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.
 Findings: The comparative analysis of government expenditure and economic growth in Japan revealed a positive correlation between increased public spending and economic expansion. Strategic allocations towards sectors like education and healthcare were found to significantly contribute to long-term growth. Recommendations stressed the importance of transparent and accountable spending practices for sustained economic development, emphasizing prudent fiscal management and efficient resource utilization.
 Unique Contribution to Theory, Practice and Policy: Keynesian economics, wagner's law & endogenous growth theory may be used to anchor future studies on the government expenditure and economic growth: a comparative analysis of Japan. Develop a comprehensive framework for evaluating the effectiveness of government expenditure policies in Japan. Fiscal Sustainability Strategies: Develop strategies for ensuring the long-term sustainability of government finances in Japan, given the challenges posed by an aging population and rising healthcare costs.

Testing the validity of Wagner's law in four income groups: A dynamic panel data analysis

This study endeavors to examine the validity of Wagner's Law, which has received considerable attention in recent years. We develop a panel dataset of 20 countries, taking five countries from each income group defined by the World Bank, for the 1991–2018 periods. Five different versions of the law are tested using this dataset. We add further depth to the model by involve the government's revenue and the volume of trade as independent variables. We inquire into the subsistence of cross-sectional dependence. To determine the order of integration, we conduct LLC, IPS, and CADF tests. The results show that the dataset has I (0) and I (1) series, and no series is found to be of I (2). Then we perform the panel ARDL test, and calculate PMG and DFE estimates. We use the Hausman test to choose among the estimates. In each version of the law, the error correction term indicates the presence of both long-term associations within the variables and an economic convergence process. However, we find no evidence to support the law for any version. Additionally, we conduct the panel cointegration tests, such as Westerlund, Pedroni and Kao. These cointegration tests generate results accordant with the ARDL findings.

Exploring the Drivers of Government Expenditure Patterns in Pakistan

The study investigating the factors influencing government spending in Pakistan utilizes time-series data spanning from 1980 to 2019. The analysis modifies Wagner's law by incorporating political instability alongside variables such as GDP, debt, inflation, population, trade openness, oil price, and tax revenue. The long-term findings validate Wagner's law in both models, while the short-term results deviate from Wagner's law in Pakistan. This deviation suggests that industrialization progress has enabled the government to improve public expenditure by providing essential facilities. Additionally, the study reveals that the government's active role in national activities leads to an increase in its size. Inflation, population, oil price, real GDP, and political instability exhibit positive and significant connections with government expenditure in the long run for both models. Conversely, debt, nominal GDP, political instability, trade openness, and tax revenue demonstrate negative and significant connections with government expenditure in the long run for both models. However, the short-term results vary between the two models.

The Nexus Between Public Revenue and Government Expenditure in Nigeria

This study examined the effect of government revenue on government expenditure in Nigeria. The study used a retrospective research design and data was obtained from a statistical bulletin from the OECD, CBN, IFRS and National Bureau of Statistics for the period 1981 to 2020. Descriptive statistics, correlation and multiple regression analysis were used to analyze the data based on SPSS 20.0 and the Advanced Excel Analytical Toolkit 2018 package. The result revealed a positive and statistically significant relationship between corporate income tax (CIT) and Government Capital Expenditure (GCE). The relationship between Value Added Tax (VAT) and Government Capital Expenditure (GCE) is also positive and statistically significant. Furthermore, CIT and VAT have been shown to have a positive and statistically significant relationship with government recurrent expenditure (GRE), respectively. Thus, the study reveals a significant relationship between government revenue and government expenditure in Nigeria. Among other things, we recommend that the government increase the number of goods on which Nigeria is subject to VAT to expand net VAT revenue as well as the collection of other indirect taxes to improve all public spending on Nigeria's economic growth - in line with Keynesian theory of expenditure and economic growth. Furthermore, in order to increase revenue for the CIT, according to Adolf Wagner's law of increasing public spending, the government must use tax money to create a favorable economic environment that stimulates high levels of industrial activity, thereby greatly affecting corporate performance and profits.

Forecasting expenditure components in Nigeria

PurposeThis study forecasts the government expenditure components in Nigeria, including recurrent and capital expenditures for 2021 and 2022, based on data from 1981 to 2020.Design/methodology/approachThe study employs statistical/econometric problems using the Feasible Quasi Generalized Least Squares approach. Expenditure forecasts involve three simulation scenarios: (1) do nothing where the economy follows its natural path; (2) an optimistic scenario, where the economy grows by specific percentages and (3) a pessimistic scenario that defines specific economic contractions.FindingsThe estimation model is informed by Wagner's law specifying a positive link between economic activities and public spending. Model estimation affirms the expected positive relationship and is relevant for generating forecasts. The out-of-sample results show that a higher proportion of the total government expenditure (7.6% in 2021 and 15.6% in 2022) is required to achieve a predefined growth target (5%).Originality/valueThis study offers empirical evidence that specifically requires Nigeria to invest a ratio of 3 to 1 or more in capital expenditure to recurrent expenditure for the economy to be guided on growth.

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

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.

Public expenditure and economic growth: Empirical validation of Wagner's law in Morocco

Public expenditure and economic growth: Empirical validation of Wagner's law in Morocco

The relationship between public expenditures and economic growth in the scope of economic classification: The case of Turkiye

The relationship between public expenditures and economic growth is a constantly debated topic among researchers. There are five main models used to test Wagner's Law. This study aims to test Wagner's Law for Turkiye's public expenditure and expenditure types within the scope of economic classification by using all models in the literature. We tested the validity of Wagner's Law in the Turkiye case using the ARDL method applied for the years 1950-2020. Study findings prove that Wagner's Law is valid in Turkiye using the Mann and Peacock models for public expenditure. In addition, the findings support Wagner's Law only in transfer expenditures among sub-components. These findings point out that public expenditure, which increases more than gross domestic product, is dominated by transfer expenditures. The fact that social transfers account for approximately 75% of transfer expenditures in the last decade demonstrates that Turkiye prioritizes the social state function.

Linkage Between Income and Government Expenditure at Indian Sub-Nationals: A Second-Generation Panel Cointegration Techniques

This article examined whether the Wagner’s law that represents the long-run relationship between income and public expenditure holds at the subnational level in India. It also examines whether the Wagner's law is revenue expenditure specific or capital expenditure specific in the context of Indian sub-nationals. The paper covers 21 Indian States and a time period of 40 years, from 1980-81 to 2019-20. In this study we have assessed six pairs of relationships among state-level income, public expenditures, revenue expenditure, capital outlay, public expenditure on economic services, public expenditure on social services, and expenditure on the developmental sector. The validity of the law was examined for nine different panels of states broadly under income categories and geographical regions. Unlike first-generation panel techniques, which fail to account for the aspects of cross-sectional independence and heterogeneity, the present study tests the validity of the Wagner’s law using the second-generation panel unit root method and cointegration approach. The analysis adopted Panel Dynamic Ordinary Least Square to test the evidence of Wagner’s law hypothesis. The findings reveal that Indian states are heterogeneous in terms of public expenditure, and there exists cross-sectional dependence. There also exists a long-run cointegrating relation between state-level income and state-level public expenditure. For the full sample, while this study finds holding Wagner’s law, there is a mixed validity of the law in different panels across income categories and regions. In addition, it is observed that the validity of Wagner’s law in the Indian Subnational context is mainly driven by the high-income major states, and it is more capital outlay centric. To conclude, these responsive affiliations comprehend the effectiveness of public expenditure as a fiscal policy instrument in stimulating economic growth and the contribution of economic growth in the budget exercise at the subnational level. Therefore, subnational governments need to be more strategic to ensure growth momentum as the public expenditure indirectly and directly causes the living standard and welfare of the people in the economy. It must be acknowledged that India adopted fiscal rules in 2005, which may limit the procyclical fiscal policy during the swings in the business cycle, and thus have implications for budget exercises at the sub-national level.

Impact of Trade and Capital Openness on the Government Size of Russia

Relevance: With Russia's economy and trade growing significantly since 2014, there is a need to examine the impact of economic openness on government expenditure, given the country's fiscal and trade reforms. Research Objective: This study aims to measure the impact of economic openness on government expenditure (government size) by categorizing it into trade and capital openness. The Auto Regressive Distributed Lag (ARDL) model is used to measure the long-run and short-run impact of economic openness on government size. Data and Methods: Annual time series data from the World Bank Open Data on World Development Indicators (WDI) from 1997 to 2021 is used. The study examines the relationship between government expenditure, trade openness, and capital openness. Results: The findings show that higher trade openness leads to a significant increase in government size, while more capital openness results in a reduction in the size of the government. The study also highlights the impact of current account deficits and national income on government size, with liberal trade policies leading to a widening current account deficit. The positive correlation between national income and government size supports Wagner's Law of "Increasing State Activity." Conclusion: The study suggests that policymakers should adopt a careful approach to liberal policies that encourage trade and capital openness, as an overly liberalized approach could harm macroeconomic factors such as fiscal and current account balances. The study also underscores the challenges that nations like Russia face when entering the global markets for goods beyond oil exports.

Public spending and economic growth in Ivory Coast: Wagner’s law

<p><big>This study simultaneously tests Wagner’s law on one hand and Keynes proposition on the other hand related both government spending and output in Ivory Coast that experiencing long run economic growth and widened deficit. That challenges the country’s fiscal sustainability. With annual data from 1980 to 2020, results show that Wagner’s law holds, the elasticity of government spending to output is greater than one. There is bidirectional causality between government size and output validating Keynesian idea that public expenditure is an exogenous factor and a policy instrument for increasing national income. Wagner law and public deficit can justify Ivorian over-indebtedness.</big></p>

Determinants of Household Food Expenditure: Does Engel Law Hold in Nigeria?

The study investigated the determinant of household food expenditure in Nigeria using Nigeria General Household Survey panel component (GHS-Panel) 2018/19 data set. The survey collects a wide range of information from the household about their expenditure, income sources, education, demographic information, credit, remittances, household assets among other information. The findings revealed among others that variables like income, household remittances, access to loan, family size, and healthcare expenditure are all having significant impact on household food expenditure. However, factors like age, gender, and education do not have significant impact on household food expenditure. It was also revealed that families with high income tends to spend lower proportion of their incomes on food, which is consistent with the Engel law. The study conclude that Wagner Law holds in Nigeria and that family with more size spend more on starchy and carbohydrate food than on other class of foods.

On the determinants and interrelationship of components of government spending

AbstractThe paper examines the determinants and interrelationship of components of government spending using data for up to 142 countries over the period 1990–2017. We make use of two‐way fixed effect estimator with Driscoll‐Kraay standard errors, which accounts for cross‐sectional dependence and a system generalized method of moments estimator to examine the determinants of components of spending. We then adopt the seemingly unrelated regression estimation technique to examine the interrelationship between government spending types. From our results, there is little evidence of Wagner's Law as the coefficient of income is negative and statistically significant for most measures of spending. Further, we find that a reduction in overall government spending tends to reduce the share of almost all components of government spending except spending on economic services, non‐productive spending, and spending on transfers. In examining the interrelationship between government spending types, we find that government spending types under the Classification of Functions of Government (COFOG) classification, which may be described as “pure public goods” and “merit public good provision,” have complementary relationships. However, government spending on pure public good vs merit public goods, pure public goods vs economic services, and pure public goods vs transfers could be considered substitutes.

Breaking Wagner's Law: Which Countries Have the Most Limited Government?

Which countries have the world's smallest and the world's largest governments? One-fifth of the Economic Freedom of the World index is a subindex scoring the size of government for countries across the world. This subindex is inclusive of the three dimensions of government spending, the top marginal tax rate, and the government ownership of the economy. Measured in this manner, the “smallest” governments are, generally, weak or fragile states. This paper recognizes Wagner's law, the empirical regularity that wealthier countries tend to spend more as a percentage of gross domestic product (GDP). It then performs a novel adjustment to the size of government data to account for Wagner's law, re-scores and re-ranks the countries, and explores the results.

Kamu Harcamaları ve Ekonomik Büyüme Arasındaki İlişkinin Wagner ve Keynes Kapsamında Analizi: AB Ülkeleri Örneği

Determining the direction of the relationship between public expenditures and economic growth has been among the issues that have been discussed for many years. In the paper, the relationship between public expenditures and economic growth was investigated within the scope of Wagner's Law and Keynes Theory, using annual data for the period of 1995-2019 for EU countries. For this purpose, Westerlund (2008) Durbin-Hausman cointegration test and Dumitrescu-Hurlin (2012) panel causality test were applied to test the related theories. According to the findings, it has been concluded that the Wagner Law is generally valid in EU countries.

Wagner's Law vs. Keynesian Hypothesis: Empirical Evidence for G20 Countries

The economic growth-public expenditure relationship is one of the important subjects that both policymakers and scientists focus on during extraordinary conditions such as economic crises, natural disasters or epidemics. Despite the privatization practices and the efforts to adopt the minimal state approach proposed by neoliberalism, which have become widespread significantly since the 1970s, public expenditures increase the interest in the subject. The study analyses the validity of the Keynesian approach, which argues that public expenditures are a fiscal policy tool that supports economic growth, in G-20 countries, as opposed to Wagner's approach, which argues that economic growth is the reason for the increase in public expenditures. The analysis was carried out with the Pesaran CCEMG estimator, which considers cross-sectional dependence and heterogeneity, using annual data from 1994-2017. According to the findings, it could be stated that Wagner's Law is not valid in G-20 countries because the slope coefficient does not fulfil the condition of being more significant than 1, whereas the Keynesian approach is valid. Moreover, a bidirectional causality was discovered between economic growth and public expenditures. Consequently, public expenditures can be used as an effective fiscal policy tool to eliminate economic instabilities under political, economic, or extraordinary conditions such as COVID-19.