Public Sector Growth: An Econometric Test of Wagner's Law

Authors

E. A. Essien, Central Bank of Nigeria

Publisher

Central Bank of Nigeria

Keywords

Public Sector, Public Sector Growth, Econometric Test, Wagner's Law

Abstract

This study makes use of recent developments in econometric technique to test Wagner s Law of increased state activity according to which Government Expenditure must increase at a rate faster than National Output. It makes use of three different interpretations of the Law, namely, increasing relative share for the public sector in the total economy as per capita real income grows, total government expenditure as a function of real income, and relating per capita total government expenditure to per capita income. In all cases the variables were not cointegrated hence a long run equilibrium relationship could not be established between public spending and income. A causality test performed on the models confirmed that public expenditure does not cause growth in income and there was no existence of a feedback relationship. Thus increased public expenditure may not be an appropriate policy instrument to promote economic growth except where the expenditure is on productive ventures.

Author Bio

Mr. E. A. Essien is a Statistician in the Research Department of the Central Bank of Nigeria.

Publication Title

CBN Economic and Financial Review

Issue

3

Volume

35

Recommended Citation

Essien, E. A. (1997). Public Sector Growth: An Econometric Testing of Wagner's Law. CBN Economic and Financial Review. 35(3), 332-352.