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Abstract
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Article Information:
Investigating Wagner’s Law-Cointegration and Causality Tests for Kenya
Cyrus M. Mutuku and Danson K. Kimani
Corresponding Author: Danson Kimani
Submitted: February 18, 2011
Accepted: March 15, 2011
Published: April 30, 2012 |
Abstract:
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Wagner's law is widely held as the first model of public expenditure in the history of public finance.
It is an antithesis of the Keynesian postulation that Government expenditure causes economic growth hence
taking the former as a policy instrument. This study contributes to the existing literature by assessing the
empirical evidence of Wagner’s law in Kenya for the period of 1960-2009. It applies cointegration analysis in
the investigation of long-run relationship between public expenditure and GDP. The existing literature reveals
that Cointegration is a necessary condition to establishing a long-run relationship between public expenditure
growth and income. However, in support of the Wagner's law, the required sufficient condition is the existence
of a unidirectional causality from GDP to public expenditure. The study employed the Engle and Granger twosteps
cointegration test, Granger causality test and time series aggregated data to carry out the test. The findings
reveal that two versions of the law meet the necessary and sufficient condition hence, the Wagner’s law holds
in Kenya for the entire period under study.
Key words: Aggregated data, economic growth, public expenditure, stationarity, Wagner’s hypothesis, ,
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Cite this Reference:
Cyrus M. Mutuku and Danson K. Kimani, . Investigating Wagner’s Law-Cointegration and Causality Tests for Kenya. Current Research Journal of Economic Theory, (2): 43-52.
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ISSN (Online): 2042-485X
ISSN (Print): 2042-4841 |
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