Wagner’s law revisited: Cointegration and causality tests for New Zealand

Kumar, S., Webber, D. J. and Fargher, S. (2012) Wagner’s law revisited: Cointegration and causality tests for New Zealand. Applied Economics, 44 (5). pp. 607-616. ISSN 0003-6846

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Publisher's URL: http://dx.doi.org/10.1080/00036846.2010.511994

Abstract

Wagner’s Law states that the share of government expenditure in GNP will increase with economic development; many associated empirical studies substitute GNP with GDP. This paper presents an empirical investigation into the validity of Wagner’s Law for New Zealand over the period 1960-2007 and compares the results obtained using these two measures of output. Application of the autoregressive distributed lag bounds test suggests a cointegrating relationship between either output measure and the share of government spending, and further application of General to Specific, Engle and Granger, Phillip Hansen’s Fully Modified Ordinary Least Squares and Johansen’s time series techniques illustrate statistical robustness and an income elasticity between 0.56 and 0.84. The results suggest that output measures Granger-cause the share of government expenditure in the long run, thereby providing support for Wagner’s Law, and these results are stable irrespective of the chosen output measure.

Item Type:Article
Additional Information:Available online before print: 2nd February 2012
Uncontrolled Keywords:government spending, GNP, GDP, cointegration, Granger causality
Faculty/Department:Faculty of Business and Law > Department of Accounting, Economics and Finance
ID Code:15885
Deposited By: Professor D. Webber
Deposited On:01 Nov 2011 15:13
Last Modified:12 Aug 2013 18:02

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