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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Wagner's law: an econometric test for South Africa, 1960-2006
Author:Ziramba, EmmanuelISNI
Year:2008
Periodical:South African Journal of Economics
Volume:76
Issue:4
Pages:596-606
Language:English
Geographic term:South Africa
Subjects:public expenditure
national income
1950-1999
External link:https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2008.00218.x/pdf
Abstract:A classic approach to explaining the growth of public spending is Wagner's law, which states that, in the process of economic development, government economic activity increases relative to private economic activity. The main objective for this paper is to test Wagner's law by analysing the causal relationships between real government expenditure and real national income for South Africa for the period 1960-2006. The paper tests the long-run relationship between the two variables using the autoregressive distributive lag approach to cointegration suggested by M.H. Pesaran et al (2001). It uses the Granger non-causality test procedure developed by H.Y. Toda and T. Yamamoto, which uses a vector autoregression model to test for the causal link between the two. Evidence of cointegration is sufficient to establish a long-run relationship between government expenditure and income. However, support for Wagner's law would require unidirectional causality from income to government expenditure. Therefore, cointegration should be seen as a necessary condition for Wagner's law, but not sufficient. The present paper does find a long-run relationship between real per capita government expenditure and real per capita income. Results for the short-run causality find bidirectional causality. On the basis of the paper's empirical results, one may tentatively conclude that Wagner's law finds no support in South Africa. App., bibliogr., sum. [Journal abstract]
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