Kumar, Saten (2009): Further Evidence on Public Spending and Economic Growth in East Asian Countries.
Download (178kB) | Preview
This article examines Wagner’s Law for East Asian countries (China, Hong Kong, Japan, Taiwan and South Korea) for the period 1960 to 2007. Using the Gregory and Hansen (1996a & b) structural break techniques, we find a cointegrating relationship between real government spending and real income. Our preferred Gregory and Hansen models are with the level shift for Hong Kong and Taiwan and regime shift (change in intercept and slope coefficients) for China, Japan and South Korea. The income elasticity of government spending ranges from 0.756 to 1.155. With these findings, we infer that Wagner’s Law does hold for these countries, except for Hong Kong where the income elasticity is not highly statistically significant.
|Item Type:||MPRA Paper|
|Original Title:||Further Evidence on Public Spending and Economic Growth in East Asian Countries|
|English Title:||Further Evidence on Public Spending and Economic Growth in East Asian Countries|
|Keywords:||Real Government Spending; Real Income; Gregory and Hansen Structural Break Techniques.|
|Subjects:||H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
|Depositing User:||Saten Kumar|
|Date Deposited:||15. Dec 2009 07:36|
|Last Modified:||08. Jan 2014 05:25|
Abizadeh, S. and Gray, J. (1985) ‘Wagner’s Law: a pooled time-series cross-section comparison’, National Tax Journal, 88, 209-218.
Abizadeh, S. and Yousefi, M. (1998) ‘An empirical analysis of South Korea’s economic development and public expenditures growth’, Journal of Socio-Economics, 27, 687-700.
Ahsan, M., Kwan, A. C. and Sahni, B. S. (1996) ‘Cointegration and Wagner’s hypothesis: time series evidence for Canada’, Applied Economics, 28, 1055–1058.
Ansari, M. I., Gordon, D. V. and Akuamoah, C. (1997) ‘Keynes versus Wagner: public expenditure and national income for three African countries’, Applied Economics, 29, 543-550.
Arpaia, A. and Turrini, A. (2008) ‘Government expenditure and economic growth in the EU: long run tendencies and short run adjustment’, available at http://ec.europa.eu/economy_finance/publications.
Bird, R. (1971) ‘Wagner’s Law of expanding state activity’, Public Finance, 26, 1-25.
Burney, N. A. (2002) ‘Wagner’s hypothesis: evidence from Kuwait using cointegration tests’, Applied Economics, 34, 49–57.
Chang, T., Liu, W. and Caudill, S. (2004) ‘A re-examination of Wagner’s Law for ten countries based on cointegration and error-correction modeling techniques’, Applied Financial Economics, 14, 577–589.
Chow, Y., Cotsomitis, J.A. and Kwan, A.C. (2002) ‘Multivariate cointegration and causality tests of Wagner’s hypothesis: evidence from the UK’, Applied Economics, 34, 1671-1677.
Cotsomitis, J.A., Harnhirun, S. and Kwan, A.C. (1996) ‘Co-integration analysis and the long run validity of Wagner’s hypothesis: evidence from the People’s Republic of China’, Journal of Economic Development, 21, 1-10.
Courakis, A. S., Moura-Roque, F. and Tridimas, G. (1993) ‘Public expenditure growth in Greece and Portugal: Wagner’s Law and beyond’, Applied Economics, 25, 125–134.
Gandhi, V. P. (1971) ‘Wagner’s law of public expenditure: do recent cross-section studies confirm it?’ Public Finance, 26, 44–56.
Gemmell, N. (ed) (1993) ‘The Growth of the Public Sector: Theories and International Evidence’, Edward Elgar.
Gregory, A.W. and Hansen, B.E. (1996a) ‘Residual-based tests for cointegration in models with regime shifts,’ Journal of Econometrics, 70, 99-126.
Gregory, A.W. and Hansen, B.E. (1996b) ‘Tests for cointegration in models with regime and trend shifts’, Oxford Bulletin of Economics and Statistics, 58, 555-559.
Huang, C. (2006) ‘Government expenditures in China and Taiwan: do they follow Wagner’s Law?’ Journal of Economic Development, 31, 139-147.
International Financial Statistics, December, 2008. IMF CD-ROM (Washington DC: International Monetary Fund).
Islam, A.M. (2001) ‘Wagner’s Law revisited: cointegration and exogeneity tests for USA’, Applied Economics, 8, 509–515.
Keynes, J.M. (1936) ‘The General Theory of Employment Interest and Money’, New York: Harcourt, Brace & World Inc.
Kolluri, B. R., Panik, M. J. and Wahab, M. S. (2000) ‘Government expenditure and economic growth: evidence from G7 countries’, Applied Economics, 32, 1059–1068.
MacKinnon, J. G. (1991) ‘Critical values for cointegration tests’, in Engle, R. F. and Granger, C.W.J. (eds), Long run Economic Relationships: Readings in Cointegration, Oxford University Press, 267-276.
McKibbin, W. and Martin, W. (1998) ‘The East Asian crises: investigating causes and policy responses’, available at http://ideas.repec.org/p/pas/papers/1998-06.html.
Muhlis, B. and Hakan, C. (2003) ‘Causality between public expenditure and economic growth: the Turkish case’, available at http://mpra.ub.uni-muenchen.de/8576/.
Narayan, P.K., Nielsen, I. and Smyth, R. (2007) ‘Panel data, cointegration, causality and Wagner’s Law: empirical evidence from Chinese provinces’, China Economic Review, 19, 297-307.
Oxley, L. (1994) ‘Cointegration, causality and Wagner’s Law: a test for Britain 1870–1913’, Scottish Journal of Political Economy, 41, 286–297.
Peacock, A. and Scott, A. (2000) ‘The curious attraction of Wagner's Law’, Public Choice, 102, 1-17.
Peacock, A. and Wiseman, J. (1961) ‘The growth of public expenditure in the United Kingdom’, Princeton University Press, Princeton.
Ram, R. (1992) ‘Use of Box-Cox models for testing Wagner’s hypothesis: a critical note,’ Public Finance, 47, 496–504.
Ram, R. (1987) ‘Wagner’s hypothesis in time-series and cross-section perspectives: evidence from ‘real’ data for 115 countries’, Review of Economics and Statistics, 69, 194-204.
Sideris, D. (2007) ‘Wagners Law in 19th century Greece: a cointegration and causality analysis’, Bank of Greece working paper No. 64, Bank of Greece.
Sinha, D. (2007) ‘Does the Wagner’s Law hold for Thailand? a time series study’, available at http://econpapers.repec.org/paper/pramprapa/2560.htm.
Wagner, A. (1883) ‘Three extracts on public finance’, in R. A. Musgrave and A. T. Peacock (eds) (1958), Classics in the Theory of Public Finance. London: Macmillan.
World Development Indicators, 2008. WDI Online Database (Washington DC: The World Bank).
Zivot, E. and Andrews, D.W. (1992) ‘Further evidence on the great crash, the oil-price shock, and the unit root hypothesis’, Journal of Business and Economic Statistics, 10, 251-270.