Causality between government spending and income: the case of Saudi Arabia

Yasuo Nishiyama

Applied Economics Letters, 2019, vol. 26, issue 5, 433-435

Abstract: The paper investigates the Granger-causal relationship between government spending (G) and income (Y) for Saudi Arabia for which G is the main driver of economic growth. Previous studies investigated two-way causality, from G to Y (Keynesian) and from Y to G (Wagnerian). This paper investigates a new explanation (post-Keynesian) that links Y to G through banks’ loan-making and deposit-creation. The latter is accompanied by an increase in statutory reserves (R). The findings are consistent with the post-Keynesian theory (from Y to R, and to G).

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:26:y:2019:i:5:p:433-435

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DOI: 10.1080/13504851.2018.1486970

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