Wagner’s hypothesis in Europe: a causality analysis with disaggregated data

• Trofimov, Ivan D ^[1]
  1. [1] Kolej Yayasan Saad (KYS) Business School
• Localización: European Journal of Government and Economics, ISSN-e 2254-7088, Vol. 12, No. 1, 2023, págs. 5-38
• Idioma: inglés
• DOI: 10.17979/ejge.2023.12.1.9146
• Enlaces
  • Texto completo
• Resumen

  • This paper examines Wagner hypothesis of the growth of public expenditure alongside the growth of economic activity for a panel of 28 European economies during the 1995-2018 period. The hypothesis is verified using Pesaran (2007) panel unit root and Westerlund (2007) cointegration tests that account for cross-sectional dependence in the series, and three panel causality tests (Toda-Yamamoto, Dumitrescu-Hurlin and Juodis-Karavias-Sarafidis) that are suitable for mixed order of series’ integration, heterogeneous balanced panels and cases of limited evidence of cointegration. The empirical results suggested that expenditure and output variables were non-stationary in levels and stationary in the first differences; the cointegration among the variables was present; the causality was principally uni-directional (from output to public expenditure), in line with Wagner’s hypothesis, or bi-directional; the causality from public expenditure to output along Keynesian lines was limited.

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