Causality between Public Expenditure and Economic Growth: The Turkish Case

Abstract

This paper takes into account recent advances in econometric techniques and examines Wagner’s Law of long - run relationship between public expenditure and GDP for the Turkish case over the period of 1965-2000. The relationship is supposed public expenditure to be an outcome, not cause, of growth in GDP. Causality must run from GDP to public expenditure, not other ways around. Using the co - integration test and the Granger Causality test, we empirically find no causality in both directions; neither Wagner’s Law nor Keynes hypothesis is valid for the Turkish case.

Keywords: Public Expenditure, Economic Growth

JEL Classification: O40, H54