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Validity of Wagner’s Law in Transition Economies: A Multivariate Approach

Suzana Balaban () and Dejan Živkov ()
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Suzana Balaban: Alfa BK University

Hacienda Pública Española / Review of Public Economics, 2021, vol. 236, issue 1, 105-131

Abstract: We test the validity of Wagner’s law in transition countries using non-stationary panel estimators. First, we test cointegration between government final consumption expenditure and GDP, then we introduce the money supply as an additional explanatory variable. Finally, the Panel DOLS is used in order to estimate the long run relationship between the variables. According to our results, the government expenditure is an endogenous factor of an increase in national income. However, in observed economies in transition, there is reduction of public activity with the progress of the economy even in the case when a money supply is added.

Keywords: Wagner’s Law; Government expenditure; Panel co-integration (search for similar items in EconPapers)
JEL-codes: C22 C23 E60 E62 H50 H53 (search for similar items in EconPapers)
Date: 2021
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Handle: RePEc:hpe:journl:y:2021:v:236:i:1:p:105-131