Wagner’s law revisited: investigating the asymmetric relationship between national income and public expenditure in India

Haider Hassan Itoo (), Mohammad Asif (), Nazim Ali () and Md Abusaad ()
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Haider Hassan Itoo: University of Kashmir
Mohammad Asif: Aligarh Muslim University
Nazim Ali: Zakia Afaque Islamia College
Md Abusaad: Lovely Professional University

SN Business & Economics, 2024, vol. 4, issue 10, 1-20

Abstract: Abstract The study tries to analyze the impact of national income on public expenditure. Further, we also endeavor to examine the asymmetric adjustment in the context of the Indian economy. Initially, unit root tests employing Augmented Dickey-Fuller (ADF) and Phillips-Perron test (PP) are used to evaluate the stationarity of the underlying data. Furthermore, the well-known non-linear autoregressive distributive lag (NARDL) model is used on yearly time series data from 1980 to 2018 to evaluate the long-run and short-run implications of the aforementioned association. The non-linear ARDL long–run results confirm the validity of Wagnerian postulation in all its five variants in India during the study period. The asymmetric ARDL results reveal that a positive shock in national income increases government expenditure. At the same time, a negative shock in the same causes a reduction in government expenditure. The results suggest the effectiveness of public expenditure as a fiscal policy tool in driving economic development in sub-national budgeting. This study is novel in the sense that the national income vs. public expenditure debate is revisited in the current scenario of country’s development so that resource allocation be optimized. To ensure robustness of the study, we specifically took total revenue and capital expenditure as public expenditure and Net National Product at Factor Cost (NNPFC) as a proxy of National income.

Keywords: Public expenditure; Wagnerian law; Indian economy; NARDL; Cointegration; Keynesian hypothesis; Development (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s43546-024-00706-6

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