Examining the Validity of Wagner’s Law versus Keynesian Hypothesis: Evidence from Turkey’s Economy

Karahan Özcan () and Çolak Olcay ()
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Karahan Özcan: Department of Economics, Faculty of Economics and Administrative Sciences, Bandirma Onyedi Eylul University, Turkey
Çolak Olcay: Department of Economics, Faculty of Economics and Administrative Sciences, Usak University, Turkey

Scientific Annals of Economics and Business, 2019, vol. 66, issue 1, 117-130

Abstract: The direction of the causality relationship between public expenditures and economic growth is one of the most controversial issues of the literature, which also causes great disagreements in the design process of economic policies. There are two approaches to this subject, which are opposite each other and called “Wagner’s Law” and “Keynesian Hypothesis”. This paper aims to examine the validity of Wagner’s law and Keynesian proposition in Turkey using Autoregressive Distributed Lag (ARDL) model over the period of 1998-2016. The findings supported the “Keynesian Hypothesis”, which advocates a one-way causality relationship from public spending to national output. More specifically, the results of the study showed that the effect of public expenditures on economic growth was positive in the short term and negative in the long term. From an economic policy standpoint, it can be argued that policymakers can promote Turkish economic growth through expansionary fiscal policies in the short run.

Keywords: fiscal policy; public expenditures; economic growth; bounds test approach (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:aicuec:v:66:y:2019:i:1:p:117-130:n:8

DOI: 10.2478/saeb-2019-0008

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