Wagner on government spending and national income: a new look at an old relationship

Manuchehr Irandoust

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

The validity of "augmented" Wagner's Law is evaluated using a sample of twelve OECD countries over the period of 1995-2015. The bootstrap panel Granger causality approach is utilized to detect the direction of causality between government spending and GDP, focusing on cross-sectional dependence, slope heterogeneity, and structural breaks. The results show a causal relationship in favor of Wagner's Law in seven countries, thus GDP is long-run forcing to government expenditures and that the causality runs from the former to the latter variable. The policy implication of the findings is that the upholding of Wagner's Law in the presence of aging population growth and increasing demand for welfare services may force policy makers to raise taxes or it leads to excessive borrowing which might affect sustainability of public finances. (C) 2019 The Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.

Original languageEnglish
Pages (from-to)636-646
Number of pages10
JournalJournal of Policy Modeling
Volume41
Issue number4
DOIs
Publication statusPublished - 2019

Swedish Standard Keywords

  • Economics (50201)

Keywords

  • Causality
  • Government spending
  • National income
  • Public sector
  • Wagner's Law

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