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Validity of Wagner’s Law in EU Member Transition Economies: Panel Causality Analysis

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  • Selim Demez

    (Hakkari University, Faculty of Economics and Administrative Sciences, Department of Economics, Hakkari-Turkey)

Abstract

One of the main issues which has been given great emphasis in economics literature, particularly since the 19th century, is that of the relationship between public expenditure and economic growth. There are two theoretical approaches in the literature dealing with this relationship. The first is Wagner’s law which states that public expenditure increases as growth expands. The second is related to the Keynesian hypothesis which states that public spending encourages growth. In other words, while Wagner asserts that the causality runs from growth to public spending, Keynes claims that public spending causes growth. In this study, the validity of Wagner’s Law was analyzed with the Dumitrescu and Hurlin (2012) panel causality test using annual data from between the years 1995 and 2019 for eleven European Union member transition economies. Our main purpose in this study was to determine whether public expenditure can be used as an effective policy tool in transition economies that are members of the European Union. The test results revealed that there is one-way causality from growth to public spending. In other words, Wagner’s Law is valid for the country group and period subject to the study

Suggested Citation

  • Selim Demez, 2021. "Validity of Wagner’s Law in EU Member Transition Economies: Panel Causality Analysis," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(2), pages 199-210, July.
    • Handle: RePEc:ist:iujepr:v:8:y:2021:i:2:p:199-210
    DOI: 10.26650/JEPR.910662
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    More about this item

    Keywords

    Transition economies; Wagner’s law; Public expenditures; Growth; Panel causality analysis JEL Classification : E62 ; C33 ; H59;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H59 - Public Economics - - National Government Expenditures and Related Policies - - - Other

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