WAGNER'S LAW REVISITED: A NOTE FROM SOUTH AFRICA

The aim of this note is to reassess the validity of Wagner's law for South Africa for the period 1950‐2007 using cointegration and causality tests. The evidence shows causality running from income to government expenditure, thus supporting the Wagnerian proposition of an expanding public sector...

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Bibliographic Details
Published in:The South African Journal of economics 2012-06, Vol.80 (2), p.200-208
Main Authors: MENYAH, KOJO, WOLDE-RUFAEL, YEMANE
Format: Article
Language:English
Subjects:
Appropriations and expenditures
bounds test
Causality
Cointegration
Cointegration analysis
E62
Economic policy
Expenditures
Government spending
Income
Income elasticity
Law
National income
O11
Public expenditure
Public sector
South Africa
Studies
Wagner's law
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Summary:The aim of this note is to reassess the validity of Wagner's law for South Africa for the period 1950‐2007 using cointegration and causality tests. The evidence shows causality running from income to government expenditure, thus supporting the Wagnerian proposition of an expanding public sector. Using five different long‐run estimators, we found that the size of South Africa's public sector was positively and significantly related to South Africa's national income. The elasticity ranges from 1.12 to 1.57, implying that a 1% increase in income leads to a 1.12‐1.57% increase in government expenditure.
ISSN:0038-2280
1813-6982
DOI:10.1111/j.1813-6982.2011.01275.x