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Testing the Buchanan-Wagner Hypothesis: European Evidence from Panel Unit Root and Cointegration Tests

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  • Christopoulos, Dimitris K
  • Tsionas, Efthymios G

Abstract

According to the Buchanan-Wagner hypothesis, public deficits reduce the perceived price of public goods to the current generation of voters who, in turn, increase the demands for such social services. Several recent studies have attempted to test this proposition. In this paper, we apply modern time series techniques organized around panel unit root and panel cointegration to draw sharper conclusions from the short time series that are typically available. We find that there is a long run positive relationship between government spending and government deficits for each country individually, as well as for the panel as a whole. This provides support for the BW hypothesis. We also analyze the implications for the relative productivity performance of the public and private sector, the existence of scale economies in the provision of public services, as well as the extent of crowding out effects. Copyright 2003 by Kluwer Academic Publishers

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  • Christopoulos, Dimitris K & Tsionas, Efthymios G, 2003. "Testing the Buchanan-Wagner Hypothesis: European Evidence from Panel Unit Root and Cointegration Tests," Public Choice, Springer, vol. 115(3-4), pages 439-453, June.
    • Handle: RePEc:kap:pubcho:v:115:y:2003:i:3-4:p:439-53
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    Cited by:

    1. Polemis, Michael L. & Fotis, Panagiotis N., 2013. "Do gasoline prices respond asymmetrically in the euro zone area? Evidence from cointegrated panel data analysis," Energy Policy, Elsevier, vol. 56(C), pages 425-433.
    2. Rodríguez-Nava, Abigail & Venegas-Martínez, Francisco & López-Herrera, Francisco, 2014. "La necesidad de la reforma fiscal para PEMEX: viabilidad económica y financiera," Sección de Estudios de Posgrado e Investigación de la Escuela Superios de Economía del Instituto Politécnico Nacional, in: Universidad Autónoma del Estado de México (ed.), Efectos de las reformas estructurales en las fluctuaciones cíclicas y el crecimiento económico en México, volume 1, chapter 2, pages 43-70, Escuela Superior de Economía, Instituto Politécnico Nacional.
    3. Francois Facchini, 2018. "What Are the Determinants of Public Spending? An Overview of the Literature," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 419-439, December.
    4. James Alm & Abel Embaye, 2010. "Explaining The Growth Of Government Spending In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 78(2), pages 152-169, June.
    5. Dimitris Christopoulos & John Loizides & Efthymios Tsionas, 2005. "The Abrams curve of government size and unemployment: evidence from panel data," Applied Economics, Taylor & Francis Journals, vol. 37(10), pages 1193-1199.
    6. Agata Szymańska, 2021. "Determinants of General Government Social Spending: Evidence from the Eurozone," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 4, pages 508-528.
    7. Elton Beqiraj & Silvia Fedeli & Francesco Forte, 2018. "Public budgetary rules and GDP growth: An empirical study on OECD and twelve european countries," Southern Economic Journal, John Wiley & Sons, vol. 85(1), pages 170-188, July.
    8. Roberto Dell’Anno & Paulo Mourao, 2012. "Fiscal Illusion around the World," Public Finance Review, , vol. 40(2), pages 270-299, March.
    9. Pedro Henrique Martins Prado & Cleomar Gomes da Silva, 2020. "Wagner’s Law and Fiscal Illusion: An analysis of state government finances in Brazil," Review of Development Economics, Wiley Blackwell, vol. 24(2), pages 628-643, May.

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