Examining the Validity of Wagner’s Law in the OECD Economies

Abstract

In this study, the validity of Wagner’s Law, which explains the relationship between public
expenditures and economic growth, has been analyzed over its alternative models by using
the data from 27 OECD economies between the years 1995- 2012. It has been carried out by
utilizing unit root, co-integration and error correction tests panel data analyses, the long term
co-efficiencies between public expenditures and economic growth. In order to test the
relationship of co-integration, the Pedroni, Johansen-Fisher and Westerlund co-integration
tests were utilized, whereas for the predictions of the long term co-efficiencies, the DOLS
predictor was utilized. In addition, the PMGE and MGE error correction models were
benefited from for predicting the short term parameters between the variables.