Wagner hypothesis in India: An empirical investigation from pre and post reform period

Abstract

The present study empirically examines the validity of Wagner's hypothesis for Indian economy in pre (1967–1990) and post (1991–2015) reform period. The study examined six alternatives versions of Wagner's hypothesis. The long‐run relationship between government expenditure and economic growth is tested using ARDL model while causal relationship has been investigated using Granger causality test. The results found strong evidence of Wagner's hypothesis during post reform period while the elasticity of government expenditure to economic growth is low in pre reform period. Further, results indicate that unidirectional causality is moving from economic growth to government expenditure in all versions of Wagner's hypothesis.

An Empirical Investigation of Wagner's Law for Twelve Indian States: A Pooled Mean Group Approach Using Linear and Non-Linear Specifications

“…Hazarika and Nayak (2022), Sagdic, Sasmaz, and Tuncer (2020) and Narayan et al (2012), which supported the notion of a bidirectional relationship between public expenditure and economic growth, aligning with both Wagner's law and Keynes' hypothesis. However, the conclusions drawn from the research Rani and Kumar (2022) are consistent with the present study's findings, suggesting that for the Indian states examined, Wagner's law holds true while Keynesian hypothesis is rejected.…”