Government expenditure and economic growth: evidence from G7 countries

Abstract

This paper examines Wagner's Law of Public Expenditure, which emphasizes economic growth as the fundamental determinant of public sector growth, using time series data drawn from the G7 industrialized countries over the sample period 1960 1993. It presents evidence on both the short- and long-run effects of growth in national income on government expenditure by resorting to recent developments in the theory of cointegrated processes. An attempt is also made in this study to examine if Wagner's Law holds between certain key components of government expenditure and income.

Examining the Validity of Wagner’s Law in the OECD Economies

“…The validity of Wagner's Law has been assessed and evaluated by using various econometric methods for different countries in an empiric way. Some of the results extracted from such studies offer supportive evidence (Oxley 1994;Ahsan et al 1996;Kolluri et al 2000;Sideris 2007;Kumar et al 2012), while some present contrary evidence (Courakis et al 1993;Koop and Poirier 1995;Afxentiou and Serletis 1996;Ansari et al 1997;Chow et al 2002;Burney 2002).…”

“…According to the results of the analysis; out of the countries studied, only Ghana produces findings that support the Wagner Hypothesis, while no supportive findings for the other two countries have ever been found. Kolluri et al (2000), in their works, examined the relationship between public expenditures and national income by utilising the time series data of the industrialised G7 countries, comprised of Canada, France, Italy, Japan, England, the USA and Germany within the period of 1960-1993. The results of the studies, in a way, support Wagner's Law, indicate the presence of a long term equilibrium relationship between governmental expenditures and national income .…”

Testing the Existence of Wagner Law and Government Expenditure Volatility in Indonesia Post-Reformation Era

“…Hence, it can be said that Wagner Law is a long-run equilibrium in the economy as whole, even though it is still possible to have an adjustment in the short-run. This fact is explained further by Kolluri, Panik, & Wahab (2000) who showed the short-run adjustment in the case of Wagner Law in the G-7 countries for the period of 1960 -1993. Test of the existing of Wagner Law in an economy can be performed by adding exogenous variables (Cheng and Lai, 1997;Ahsan, Kwan, & Sahni, 1992;Hussain, Iqbal, & Wahab, 2010). Nevertheless, the model should have a co-integration test among variables used.…”

The impact of educational expenditures of government on economic growth of Iran

“…The relationship between government expenditure and economic growth has attracted the attention of many economists over the past few decades (Kolluri et al, 2000;Govindaraju et al, 2011). For a long time, there was no model to determine public expenditure.…”