Wagner’s Law Revisited: Cointegration and Causality tests for New Zealand

Saten Kumar, Don Webber and Scott Fargher
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Saten Kumar: Department of Business Economics, Auckland University of Technology
Scott Fargher: Department of Business Economics, Auckland University of Technology

No 917, Working Papers from Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol

Abstract: Wagner’s Law states that the share of government expenditure in GNP will increase with economic development; many associated empirical studies substitute GNP with GDP. This paper presents an empirical investigation into the validity of Wagner’s Law for New Zealand over the period 1960-2007 and compares the results obtained using these two measures of output. Application of the autoregressive distributed lag bounds test suggests a cointegrating relationship between either output measure and the share of government spending, and further application of General to Specific, Engle and Granger, Phillip Hansen’s Fully Modified Ordinary Least Squares and Johansen’s time series techniques illustrate statistical robustness and an income elasticity between 0.56 and 0.84. The results suggest that output measures Granger-cause the share of government expenditure in the long run, thereby providing support for Wagner’s Law, and these results are stable irrespective of the chosen output measure.

Keywords: Government spending; GNP; GDP; Cointegration; Granger causality (search for similar items in EconPapers)
JEL-codes: C22 H50 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2009-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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http://carecon.org.uk/DPs/0917.pdf First version, 2009 (application/pdf)

Related works:
Journal Article: Wagner's Law revisited: cointegration and causality tests for New Zealand (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:uwe:wpaper:0917

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