Wagner's Law in Developing Countries: Evidence from Time Series Analysis

The objective of this study is to verify Wagner's law in the context of a group of twenty developing countries with the aid of elasticity, casuaity, cointegration and error-correction approaches. The cointegration tests confirm the presence of long-run relationship between national income and government expenditure in most of the sample countries. Though the evidences from elasticity, Granger causality test and error-correction models are somewhat mixed, the overall weight of the findings is in favour of the law. This revealation, however, is significant especially when several previous studies have questioned the validity of the law by relying exclusively on the Granger tests.