Testing Wagner's Law at Different Stages of Economic Development

Jan Kuckuck

FinanzArchiv: Public Finance Analysis, 2014, vol. 70, issue 1, 128-168

Abstract: Using historical data from the mid-19th century, we test the validity of Wagner's law of increasing state activity at different stages of economic development for five industrialized European countries: the United Kingdom, Denmark, Sweden, Finland, and Italy. In order to investigate the relation between Wagner's law and development stage, we classify every country into individual stages of income and apply advanced cointegration and vector error-correction analyses. In line with Wagner's hypothesis, our findings show that the relationship between public spending and economic growth has weakened at an advanced stage of development. Furthermore, all countries under review support the notion that Wagner's law may have lost its economic relevance in recent decades.

Keywords: Wagner's law; government expenditure; economic development; cointegration; VECM (search for similar items in EconPapers)
JEL-codes: E62 H5 N43 N44 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (16)

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DOI: 10.1628/001522108X679183

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