An Overview of the Wagner's Law and Keynesian Hypothesis through Heterogeneous Panel Causality Testing: The Case of BRIC and CIVETS Countries
Chapter from the book: Akça, H. & Ata, A. Y. & Yurdadoğ, V. (eds.) 2023. Economic Policies and Transformation from Theory to Practice I.

Fatih Demir
Süleyman Demirel University

Synopsis

Wagner's Law and the Keynesian Hypothesis, based on the relationship between public expenditures and economic growth, differ from each other in terms of the direction of causality between the variables. The Wagnerian perspective suggests that as economic growth increases, the role of the government in the economy grows, leading to an increase in government spending. In contrast, the Keynesian view advocates government intervention for achieving economic equilibrium and sees government spending as a positive factor that can influence economic growth. This study aims to examine the causality relationship between government spending and economic growth. To achieve this, the Dumitrescu and Hurlin (2012) heterogeneous panel causality test is applied using data spanning from 1995 to 2021 for BRIC (Brazil, Russia, India, and China) and CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa) countries. The findings of the study reveal that Wagner's Law is valid in Egypt and Russia, while the Keynesian Hypothesis is valid in South Africa. In Indonesia and Turkey, both Wagner's Law and the Keynesian Hypothesis are valid. However, in other countries, no causality relationship between the variables is observed.

How to cite this book

Demir, F. (2023). An Overview of the Wagner's Law and Keynesian Hypothesis through Heterogeneous Panel Causality Testing: The Case of BRIC and CIVETS Countries. In: Akça, H. & Ata, A. Y. & Yurdadoğ, V. (eds.), Economic Policies and Transformation from Theory to Practice I. Özgür Publications. DOI: https://doi.org/10.58830/ozgur.pub293.c1266

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Published

October 21, 2023

DOI