WAGNER’S LAW IN 19TH CENTURY GREECE: A
COINTEGRATION AND CAUSALITY ANALYSIS
Bank of Greece and University of Ioannina
The validity of Wagner’s law, which states that the growth of public expenditure can be explained as a result of the increase in economic activity, is tested for Greece during the period 1833-1938. This represents a period of growth, industrialisation and modernisation of the economy, conditions which should be conducive to Wagner’s law. In addition, the long data sample ensures the reliability of the results in terms of economic significance and statistical inference. Cointegration analysis provides positive evidence for the existence of a long-run relationship between government expenditure and national income, and Granger causality tests indicate that causality runs from income to government expenditure. The results support Wagner’s hypothesis, in line with other empirical studies examining the validity of the hypothesis in 19th century economies.
Keywords: Public expenditure; Wagner’s law; cointegration.
JEL classification: H1; H5; N43; N44
Acknowledgements: Comments from Heather Gibson are gratefully acknowledged. All remaining errors are entirely my responsibility. The views expressed in this paper are the author’s own and do not necessarily represent those of the institutions to which he is affiliated.
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