Digging Into Economic Dynamics In South Sulawesi: Wagner’s Law To Keynes’ Hypothesis

Indraswati Tri Abdi Reviane (), Abdul Hamid Paddu, Nur Dwiana Sari Saudi, Fitriwati Djam’an and Mirzalina Zaenal
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Indraswati Tri Abdi Reviane: Hasanuddin University
Abdul Hamid Paddu: Hasanuddin University
Nur Dwiana Sari Saudi: Hasanuddin University
Fitriwati Djam’an: Hasanuddin University
Mirzalina Zaenal: Hasanuddin University

A chapter in Proceedings of the 9th International Conference on Accounting, Management, and Economics 2024 (ICAME 2024), 2025, pp 1309-1320 from Springer

Abstract: Abstract The relationship between government expenditure and economic growth has been a subject of ongoing debate in economics, particularly in the context of regional development in Indonesia. This study aims to analyze the causal relationship between government spending and regional economic growth in South Sulawesi,Indonesia, taking into account two main views namely, Wagner’s Law and Keynes Hypothesis. Wagner’s Law states that increased government spending is a consequence of economic growth, while the Keynes Hypothesis argues that government spending can stimulate economic activity. The study employs panel data regression with Fixed Effect Model (FEM) and Granger causality test using annual data from 24 regencies/cities in South Sulawesi from 2010 to 2022. The FEM results indicate a significant positive relationship between government expenditure and economic growth. Moreover, the Granger causality test reveals bidirectional causality between government spending and economic growth. Thus, government spending in public policy should be done carefully, considering certain types of spending to achieve optimal economic growth. The findings suggest a complex, interdependent relationship between government expenditure and economic growth in South Sulawesi, highlighting the need for balanced and strategic fiscal policies.

Keywords: Government Spending; Economic Growth; Keynes Hypothesis; Wagner Theory (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-758-8_106

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DOI: 10.2991/978-94-6463-758-8_106

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