Wagner's Law - A Spurious Relationship?

Abstract

Wagner's Law, the proposition that there is a long-run tendency for the public sector to grow relative to national income, has become a stylized fact in public finance. Numerous empirical studies have found strong support for the Law, particularly in a time-series framework. In this paper it is argued that these findings are likely to be spurious, because they have been performed on non-stationary variables that are not cointegrated. In the paper Swedish data for the period 1861-1990 are used.

Keywords: Wagner's Law, Government spending, Public finance

JEL Classification: H10, H50