Does Wagner's law ruin the sustainability of German public finances?
Christoph Priesmeier and
Gerrit Koester
No 08/2012, Discussion Papers from Deutsche Bundesbank
Abstract:
The empirical and theoretical literature on long-term relationships in public finance is dominated by two approaches: Fiscal sustainability and Wagner's law of an increasing state activity. In this paper, we argue that these two relationships should be analyzed simultaneously and not separately. We show how Wagner's law might influence fiscal sustainability and how the interaction of the two can be modelled using vector error correction models that include public expenditures, revenues and GDP. For Germany, we find strong evidence for Wagner's law throughout the whole period analyzed (1960-2007), while our results indicate sustainability of public finances only until 1973. We show that, for the period after 1973, it is the interaction of permanent expenditure increases and revenue reductions resulting from fiscal policy reactions to the oil crisis and Wagner's law that ruins the sustainability of public finances in Germany. Our findings underline the importance of the German debt brake for re-establishing sustainable public finances even under Wagner's law.
Keywords: Fiscal sustainability; Wagner's law; Structural breaks; Cointegration; Vector error correction models (search for similar items in EconPapers)
JEL-codes: E62 H19 H50 H63 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-eec
References: Add references at CitEc
Citations: View citations in EconPapers (6)
Downloads: (external link)
https://www.econstor.eu/bitstream/10419/57779/1/71512143X.pdf (application/pdf)
Related works:
Journal Article: Does Wagner´s Law Ruin the Sustainability of German Public Finances? (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:082012
Access Statistics for this paper
More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics (econstor@zbw-workspace.eu).