 Nonlinearities in Wagner's law: Further evidence from South AfricaMPRA Paper from University Library of Munich, Germany Abstract: Recently, it has being speculated that the linear relationship between government expenditure and economic growth may be misspecified. In our study, we contribute to the literature by investigating a nonlinear expenditure-growth relationship for South Africa by applying threshold cointegration analysis to six variations of Wagner’s law. Indeed, our empirical analysis reveal a nonlinear relationship between the time series for four out of the six versions of Wagner’s law thus providing strong evidence of existing nonlinearities for the case of South Africa. We further find uni-directional causality running from government spending to output productivity with positive increases in government expenditure leading to improved GDP levels hence lending support to the Keynesian hypothesis. And yet, we also find that negative deviations from the steady-state are eradicated slower than positive ones hence implying that increases in government spending would be offset by negative shocks to the macroeconomy over the long-run. This implies that excessive spending by South African government is not a panacea in overcoming the adverse effects of the recent global recession on the macroeconomy. Keywords: Wagner’s law; South Africa; nonlinear; cointegration; error correction model; causality. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:71702 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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