Multivariate cointegration and causality tests of Wagner's hypothesis: evidence from the UK

Abstract

The purpose of this paper is to examine the issue of omitted variables in testing the long run validity of Wagner's hypothesis. Using UK data for the period 1948 to 1997, this paper first investigates the secular relationship between public spending and economic development in a bivariate system. In all cases considered, our bivariate cointegration tests indicate the absence of a long run equilibrium condition. However, the introduction of a third variable (money supply) re-establishes a cointegrating relationship between public expenditure and economic development variables. In addition, the results of the Granger's multivariate causality test indicate a unidirectional causality from income and money supply to public spending in the long run, thus providing support for Wagner's hypothesis.

Las Relaciones De Causalidad Entre El Gasto Público Y El Producto en México: ¿existe Evidencia De Cambio Estructural?

“…Esto es , la ley de Wagner, establece, que un incremento en el gasto público o un aumento en su participación en el gasto total, debe traducirse en un incremento en el ingreso per cápita en la misma proporción. Ello significaría que la elasticidad entre el ingreso per cápita y el gasto público debería ser igual a uno (Courakis et al , 1993, Chow et al , 2002 Nota: (*) rechazo de la hipótesis nula a un nivel de significa de 5% ; ~ m ax = prueba de la raíz característica máxima (Johansen, 1995, tabla 15.1, p.214). Trace = prueba de la Traza (Mackinnon et al, 1999, t abla II, p.571); r = número de vectores de cointegración rezagos = 3.…”

The impact of educational expenditures of government on economic growth of Iran

“…Both hypotheses have been tested experimentally in developed and developing countries and they led to mixed results. For example, in studies conducted by Chow et al (2002), Thornton (1999) and Ansari et al (1997) Wagner's law was confirmed experimentally. While in the study conducted by Ram (1986), Afxentiou and Serletis (1996) and Wahab (2004), Wagner's law could not be confirmed experimentally.…”

“…Government expenditures, including expenditure on education also affect GDP growth. As a result, a simple regression including GDP and government expenditures led to specification error (Chow et al 2002). The main objective of this study was to test the Wagner's law and the Keynesian hypothesis in the Iranian economy using data from 1991 to 2012.…”

Wagner’s law, fiscal discipline, and intergovernmental transfer: empirical evidence at the US and German state levels

“…6 In the Wagner's law literature, all studies conduct cointegration analysis in a bivariate system. One notable exception is Chow et al (2002), who emphasize the importance of controlling the effects of a third variable on the cointegrating relationship between government size and economic development. 7 As described later, net state fiscal transfers can be negative in Germany, and ln is undefined.…”