Wagner’s law vs. Keynes’ hypothesis in very different countries (Armenia and Spain)

Gohar Sedrakyan and Laura Varela-Candamio

Journal of Policy Modeling, 2019, vol. 41, issue 4, 747-762

Abstract: There is considerable controversy in the economic literature concerning whether particular government expenditures have an impact on economic growth. This study analyzes the macroeconomic magnitude of government expenditures in Armenia and Spain and evaluates whether there exists a causal relationship between government expenditures and economic growth, and vice versa (Keynes’ hypothesis and Wagner’s law). The study employs the VAR methodology to analyze annual data for the years 1996–2014. By utilizing Granger causality tests, the study reveals whether the government expenditures are a significant factor in economic growth in short-term perspective. Finally, IRF and FEVD tests are applied to estimate the effects of a change in particular government expenditures on GDP for twelve year time horizon. This study validates the hypothesis that, irrespective of size and nature of the economy (Armenia vs. Spain), some public expenditures (e.g. healthcare) positively contribute to the growth of the economy, while social protection in both countries is negatively related to GDP.

Keywords: Government expenditures; Economic growth; Granger causality analysis; Impulse-response functions (IRF); Forecast-error variance decompositions (FEVD); Vector Autoregressive Models (VAR) (search for similar items in EconPapers)
JEL-codes: C54 H30 H5 H50 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:41:y:2019:i:4:p:747-762

DOI: 10.1016/j.jpolmod.2019.02.011

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