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