Determinants of the size of public expenditure in nigeria. Indeed, the significance of this paper is that it is the first one to assess the applicability of wagners law to zambia. Adolph wagner, the german economist made an in depth study relating to rise in government expenditure in the late 19 thcentury. Wagners law has been statistically tested not only from a crosscountry perspective but also. Of course, a positive relationship would imply a similar development in the asset side of the public balance sheet and an the strict law would lead to an implausible explosive path for the share of public spending over gdp. These critics view wagners predictions as essentially explaining causes of increase in expenditure and argue that the relationship lacks a firm theoretical basis. In this study, the dynamic causal relationship between government expenditure and economic growth is examined using data from south africa, the most advanced economy in africa. The study uses the recently developed autoregressive distributed lag model ardlbounds testing approach to examine this linkage. Wagners law wagner, 1883, 1912 suggests that during the process of economic development, the share of public spending in national income tends to expand. Firstly, government expenditure has been classified into revenue expenditure and capital expenditure. In the case of wagners law, evidence of cointegration is sufficient to establish a longrun relationship between public expenditure and income. This study empirically tests if the wagners law stands for the nigerian economy using data for the period 19812015. Legge di wagner e spesa pubblica italiana disaggregata.
Between 1960 and 1980 the vision of the government. Although the wagner hypothesis has many attributes, it also has several defects. Wagners law is the fi rst model of public expenditure in the history of public fi nance. Wagners law is a principle named after the german economist adolph wagner 18351917. Knowledge of precise direction of causality has important policy implications. Findings confirm wagners law through the existence of a long term relationship between the variables, while public expenditures display a. The law further argues that a rise in public expenditure can. It has even been acknowledged in wagners law that public sectors spending is regarded as endogenous factor which is being influenced by the rise in national income and not a factor that causes the growth in national income. Wagners law, that is, public expenditures outpacing economic growth. Different economists have looked at public expenditure from different point of view. Wagners hypothesis or wagners law highlight that public expenditure is an endogenous factor that is driven by the growth of national income. The empirical evidence provides indication of a structural positive correlation between public spending and per. The role of government involves public spending in order to maximize social welfare and various attempts have been done to test whether these government expenditure contribute to the economic growth rate.
In short the rise in government expenditure is the outcome of economic growth and causality should run. The theory of public expenditure may be discussed in the context of increasing public expenditure, the range of public expenditure andor in terms of the division of a given amount of public expenditure into different items like recurrent and capital expenditure. The second school of thought is the keynesian whose view is the direct opposite of the wagners law. Recent decades have seen the escalation of this debate as increased government size and low economic growth rates have become. Therefore, although the economic growth had increased, the government expenditure on making regulations had not increased and even decreased. Keyness view and on the other hand, this kind of expenditure as an exogenous factor may be the result of growth wagners law. In the paper we do not investigate the implication of wagners law about the sustainability of growing public expenditure. Finally, the budget stickiness hypothesis argues that public spending should not change since public expenditure policies are targeted in a longrun perspective. A test of wagners hypothesis for the ghanaian economy. The earliest theory of public expenditure could be traced to adolph wagner one of the leading german economists of his time who in 1883 propounded an interesting development thesis, which loosely held that as a nation develops its public sector and consequently public spending will grow in. In contrast, keynesian hypothesis emphasizes that economic growth occurs as a result of rising public expenditure and is considered as an independent exogenous variable to influence the economic growth. Aggregate consumption expenditure and economic growth.
According to wagner as an economy develops overtime, the activities and functions of the state government increase. Government expenditure and economic growth in south africa. Investigating the keynesian view and wagners law on the size. The study recommends the need for appropriate policies on effective utilization of public fund knowing that it has positive effect on the level of economic growth in the country. This point of view is in contrast to the wagner view that the public expenditure is seen as an endogenous factor or an outcome, not a cause, of economic growth. Thus, the keynesians see public expenditure as an exogenous factor, which could be used as a policy instrument to influence growth. Wagner law of increasing state activity public expenditure. Wagnars law states that as the economy develops over time, the activities and functions of the government increase.
To find out the impact of trade costs on export performance of ethiopia. The wagners law theory of increasing state activities wagners law is a principle named after the german economist adolph wagner 18351917. His view subsequently became a law, known as wagners law. Apr 14, 2011 the empirical evidence provides indication of a structural positive correlation between public spending and per. He said this based on a comprehensive comparisons of different countries. Government expenditure and economic growth in the eu long. In this version, support for wagner s hypothesis requires that the parameter, which represents the elasticity of government expenditures with respect to output, exceeds unity. This paper analyses the relevance of wagners law to zambia with a view to provide some additional knowledge about the relationship between government expenditure and economic growth. Wagner was, however, sceptical of attempts to specify in advance what that limit would be.
The keynesian economists see causal relationship running from government expenditure to economic growth. This paper builds on the existing literature studying the longterm determinants of government expenditure and makes a step forward in two respects. Wagners hypothesis of public expenditure growth a re. The theory holds that for any country, that public expenditure rises constantly. Wagner was, however, sceptical of attempts to specify in advance what. Wagners hypothesis or wagners law, and the keynesian hypothesis. Following wagners law, peacock and wiseman 1967suggested that the growth in public expenditure does not occur the way the wagners law describes, but in response to the fluctuations of booms and busts the economy may experience.
Peacock and wiseman 1961, interpreted the law to imply that public expenditures should increase by a higher rate than gdp. Wagners law is often considered as a long run relationship, which is ex pected to apply to countries during their early stages of growth and devel opment ansari, 1993, p. Investigating the keynesian view and wagners law on the size of government and economic growth in iran. The causal relationship between public expenditure and economic growth in turkey. The public expending is one of the main factors to. Since the wagners law suggests that economic growth should rise with increasing public spending, tests for wagners law is also relevant. Also, wagners law imply that the income elasticity of the demand for public goods and generally for government expenditures is more than unity akpan 2011.
Import tariff reduction impact on macro economy and fiscal. It has generally been believed that the share of government expenditure in gnp tends to rise along with gnp per capita. The keynesian view states that public expenditure is an exogenous factor that influences economic growth and can be used as a policy instrument. The starting point of my study is therefore to reject a priori any notion of an optimal size of government. In view of the aformentioned, this paper considers the relationship between public expenditure and economic growth in the context of wagners law for the period. Conflicting empirical findings of various crosssection studies of wagners law of public expenditures are examined.
Wagner believed that increased public expenditure was the natural result of economic growth and the continued pressure for social progress. However, to support wagners law would require unidirectional causality from income to. Empirical evidence based on public expenditure patterns over a 24year. Wagner law states that an increase in economic activity would lead to an increase in public expenditure while keynesian law states. Going by adolph wagners theory, increased in public expenditure would have a significant influence growth. Law of increasing state activities adolph wagner bba. Wagners law and peacock and wisemans displacement effect. Rising public expenditure and economic growth, was wagner. The results of the granger causality analysis indicates that there is a bidirectional. Nevertheless, peacock and scott in 2000 wrote a paper entitled the curious attraction of wagners law, explaining the reasons for why this. In contrast, the keynesian view keynes, 1936 hypothesized that the public expenditure is an exogenous factor that can be used as a policy variable, and which can impact upon growth and development in the shortrun. Wagners model, while containing many insights, suffered from different criticisms. However, the proportion of public expenditure to gross national income is a very rough measure of the government s activities in a form of economy. Wagners hypothesis, output growth, public expenditure, cointegration, vecm, causality.
Wagners law in oecd countries serena lamartina a, andrea zaghinib, aeuropean central bank, kaiserstrasse 29, 60311 frankfurt am main, germany bbanca ditalia, via nazionale 91, 00184 rome, italy abstract the paper proposes a panel cointegration analysis of the joint development of. The theory holds that for any country, that public expenditure rises constantly as income growth expands. Investigating the keynesian view and wagners law on the. Revenue expenditure is a current or consumption expenditure incurred on civil administration i. However, the proportion of public expenditure to gross national income is a very rough measure of the governments activities in a form of economy. The earliest theory of public expenditure could be traced to adolph wagner one of the leading german economists of his time who in 1883 propounded an interesting development thesis, which loosely held that as a nation develops its public sector and consequently public spending will grow in importance.
Nexus between public expenditure and economic growth by. Wagner identified three main factors behind the increase in government spending. Article information, pdf download for wagners law, public sector patterns, and. Wagners law versus keynesian hypothesis in malaysia. Based on his study, he propounded a law called the law of increasing state activity.
This criticism is based on the view that for some within endogenous. The later of the two parts may also be conceived in terms of allocation of the. The relationship between public expenditure and economic. This paper examines the validity of wagners 1883 hypothesis on the direction of causality between sectoral public expenditures and economic growth in namibia for the period 1991 20. The wagner s law theory of increasing state activities. Public expenditure should actually be a desirable phenomenon, but in the case of nigeria, it has been more of a bitter pill, especially with the nonsignificant nature of most of the explanatory variables, public expenditure components. Wagner s law of public expenditure using time series data drawn from the g7 industrialized countries which provides evidence on both the shortrun and longrun effects of growth in national income on government expenditure. Also revealed by this study is that of the four views on the causality between government size and economic growth, the most prominent one is the second view, the wagners law, which validates unidirectional grangercausality from economic growth to government size, followed by the bidirectional grangercausality category. An econometric investigation into the wagners law african. He gave a relationship between level of development and public expenditure. Classification of public expenditure refers to the systematic arrangement of different items on which the government incurs expenditure.
The model for the development of the public expenditure growth the models of musgrave and rostow are generalizations obtained as a result of. In order to address the omission of variable bias, the study incorporates. Second, wagner considers that when per capita income increases, it will also increase public sector demand such as education, health, culture, and other services bird. Testing the validity of wagners law in the namibian context. Following wagners law, peacock and wiseman 1967suggested that the growth in public expenditure does not occur the way the wagners law describes, but in response to the.
Review of theories on government expenditure economics essay. In an attempt to establish longrun relationship between public expenditure and economic growth, the. The theory holds that for any country, that public expenditure rises. Contrary to wagners view, keynesian hypothesis keynes, 1936 stressed that public expenditure is seen as an exogenous factor that can be used as. Adolf wagner 1883 realized the positive relationship between public spending and rates of economic growth based on diachronical tendency. He, in his comprehension comparisons of different countries at different times shows that among progressive people, public expenditure increases regularly takes place in the activity of both the central and local government. It is incurred by central, state and local governments of a country. Keyness view and on the other hand, this kind of expenditure as an exogenous factor may be the result of growth wagner s law. Wagners law, known as the law of increasing state spending, is a principle named after the german economist adolph wagner 18351917. The relationship between government size and economic growth has been a topic of discussion more than a century ago, when wagner 18831958 came up with wagners law, which places importance on economic growth as a driver of government size. Wagners hypothesis sage journals sage publications.
Public expenditure can be defined as, the expenditure incurred by public authorities like central, state and local governments to satisfy the collective social wants of the people is known as public. The impact of government expenditure on economic growth. Displacement effect hypothesis of peacock and wiseman pdf. He first observed it for his own country and then for other countries. Looking at public expenditure through this perspective gives a new insight of the patterns of public expenditure growth in the twentieth century. However, the endogenous growth theories posit that public sector either has direct or. Adolf wagner 1883 realized the positive relationship between public spending and. The following classification is a based on these different views. It focuses on public expenditure on education, health and capital goods. In short the rise in government expenditure is the outcome of economic growth and causality should run from national income to gov. The public expending is one of the main factors to increase the expense of the private costs. Wagners law, public sector patterns, and growth of public.
Wagnar s law states that as the economy develops over time, the activities and functions of the government increase. Public expenditure refers to government expenditure i. Feb 11, 2011 adolph wagner, the german economist made an in depth study relating to rise in government expenditure in the late 19 th century. This article throws light upon the top three theories for the analysis of public expenditure growth. Wagners law in oecd countries the paper proposes a panel cointegration analysis of the joint development of government expenditure and economic. According to wagner 1890 public expenditure rises as a results of rise in real per capita income known as wagners law. It suggests that during the process of economic development the share of public spending in national income tends to expand wagner, 1883. Using univariate and multivariate time series analysis, like panel unit root test and panel cointegration, and the todayamamoto causality test, the causal relationship between economic development and public expenditure is examined in 28 states of india at different stages of development from 2003 to 2015. Public expenditure has shown a significant relationship with the gross domestic product. A conceptual picture of the wagners law and keynesian hypothesis can be analytically depicted by adas framework. Public expenditure in real terms can be used as an indicator for government activities are financed by the government itself.
Keynes and wagner on government expenditures and economic. A var approach economia pubblica, 56, ottobredicembre, 2009, 3156, issn. Government expenditure and economic growth in the eu longrun. In relatively developed and less developed states, a causal flow exists from real. Theory of development of public expenditure no theoriesmod els. Abstractmain purpose of this study is to identify the impact of government expenditure on economic growth in asian countries. In relatively developed and less developed states, a causal flow.
This paper investigates the keynesian view and the wagners law on the role of public expenditure on economic growth for malaysia 19702004. Adolph wagner a german economist propounded the law of increasing state activities. They explained that during normal periods, the rise in public expenditure depends on revenue collected. Adolph wagner, the german economist made an in depth study relating to rise in government expenditure in the late 19 th century. Impact of expenditure on economic growth in pakistan. Form the results, economic, social and community services expenditure show highly significant values suggesting that these sectors are very much needed and still adds value to the economy. Testing the validity of wagners law in the namibian. Public expenditure has been classified into various categories.
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