Advances in Economics and Business Vol. 10(2), pp. 29 - 40
DOI: 10.13189/aeb.2022.100202
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Wagner's Law vs. Keynesian Hypothesis: Empirical Evidence for G20 Countries

Hasan Serkan Öztaşkın ^1,*, Serap Bedir Kara ^2
1 Ataturk University, Erzurum 25240, Turkey
² Erzurum Technical University, Erzurum 25070, Turkey

ABSTRACT

The economic growth-public expenditure relationship is one of the important subjects that both policymakers and scientists focus on during extraordinary conditions such as economic crises, natural disasters or epidemics. Despite the privatization practices and the efforts to adopt the minimal state approach proposed by neoliberalism, which have become widespread significantly since the 1970s, public expenditures increase the interest in the subject. The study analyses the validity of the Keynesian approach, which argues that public expenditures are a fiscal policy tool that supports economic growth, in G-20 countries, as opposed to Wagner's approach, which argues that economic growth is the reason for the increase in public expenditures. The analysis was carried out with the Pesaran CCEMG estimator, which considers cross-sectional dependence and heterogeneity, using annual data from 1994-2017. According to the findings, it could be stated that Wagner's Law is not valid in G-20 countries because the slope coefficient does not fulfil the condition of being more significant than 1, whereas the Keynesian approach is valid. Moreover, a bidirectional causality was discovered between economic growth and public expenditures. Consequently, public expenditures can be used as an effective fiscal policy tool to eliminate economic instabilities under political, economic, or extraordinary conditions such as COVID-19.

KEYWORDS
Wagner's Law, Keynes Hypothesis, Public Expenditure, Economic Growth, COVID-19

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Hasan Serkan Öztaşkın , Serap Bedir Kara , "Wagner's Law vs. Keynesian Hypothesis: Empirical Evidence for G20 Countries," Advances in Economics and Business, Vol. 10, No. 2, pp. 29 - 40, 2022. DOI: 10.13189/aeb.2022.100202.

(b). APA Format:
Hasan Serkan Öztaşkın , Serap Bedir Kara (2022). Wagner's Law vs. Keynesian Hypothesis: Empirical Evidence for G20 Countries. Advances in Economics and Business, 10(2), 29 - 40. DOI: 10.13189/aeb.2022.100202.