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On the linkage between government expenditure and output: empirics of the Keynesian view versus Wagner’s law

Philip Arestis, Hüseyin Şen () and Ayşe Kaya ()
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Hüseyin Şen: Ankara Yıldırım Beyazıt University
Ayşe Kaya: İzmir Kâtip Çelebi University

Economic Change and Restructuring, 2021, vol. 54, issue 2, No 1, 265-303

Abstract: Abstract Using disaggregated data based on the classification of functions of government (COFOG), this study seeks to verify the Keynesian view versus Wagner’s law on the relationship between government expenditure and output, considering Turkey as a case study. To do so, the study attempts to capture the nature of the causal relationship between the two variables by applying linear and nonlinear Granger-causality tests. Rather than Wagner’s law, the empirical findings of the study provide supportive evidence for the Keynesian view, subject to the economically meaningful components of government expenditures considered. Overall, the empirical findings show that government expenditures on defense, economic affairs, education, health, housing and community amenities, and social protection positively affect output that comes out through fiscal multiplier and investment-accelerator mechanisms proposed by John Maynard Keynes.

Keywords: Fiscal policy; Keynesian view of government expenditure; Wagner’s law; Linear and nonlinear Granger-causality tests; Turkey; E60; E62; H50 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10644-020-09284-7

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