GWagner’s Law for Low Income States in India

Rashmi Rastogi, Sangeeta Chakravarty and Basanta K. Pradhan ()
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Basanta K. Pradhan: Institute of Economic Growth, Delhi

No 383, IEG Working Papers from Institute of Economic Growth

Abstract: Wagner’s law explains the association between economic growth and public expenditure the expenditure increases as the economic grows. This study examines the association between economic growth and state public expenditure in the panel of low-income states in India. We consider the components of total expenditure—expenditure on social sector and economic services. Each of the expenditure is further divided into revenue and capital to find the driving force behind Wagner’s law. We have considered annual data for the period from 1980-81 to 2014-15. Using Auto-Regressive Distributed Lag Model (ARDL) and Pedroni’s Cointegration Test, we find that Wagner’s Law holds for total expenditure and components, social sector and components, and economic services and components for panel of lowincome states. Results, however, vary across the states. For Odisha and West Bengal the results are similar to regression results of panel of low-income states. For Madhya Pradesh and Chhattisgarh, Bihar and Jharkhand, economic growth leads to increase in state expenditure in economic services, while economic growth leads to increase in social sector expenditure in Rajasthan. Capital outlay in Rajasthan also tends to increase with economic growth.

Keywords: Wagner’s law; Low income states; Panel data; Cointegration; ARDL (search for similar items in EconPapers)
Pages: 23 pages
Date: 2019
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Published as Institute of Economic Growth, Delhi, 2019, pages 1-23

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Persistent link: https://EconPapers.repec.org/RePEc:awe:wpaper:383

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