Prague Economic Papers 2013, 22(2):284-301 | DOI: 10.18267/j.pep.452

Testing Wagner's Law for Turkey: Evidence from a Trivariate Causality Analysis

Asuman Oktayer1, Nagihan Oktayer2
1 Yildiz Technical University, Faculty of Economics and Administrative Sciences (aoktayer@yildiz.edu.tr).
2 Istanbul University, Faculty of Economics (noktayer@istanbul.edu.tr).

The purpose of this study is to analyse the relationship between government expenditure and economic growth in Turkey. The study tests the validity of Wagner's law by applying autoregressive distributed lag (ARDL) cointegration technique using annual data over 1950-2010 period. In order to find out the possible impact of omitted variables, we first tested the standard bivariate versions of Wagner's law. In the next step by including a third variable - inflation ratio - the analysis extended on a trivariate system. The findings of each testing procedure indicate that omitted variables matter. Since, while there exists no long-run relationship between the variables in the first step of the testing procedure, a long-run correlation is found in the second step. The differences of this paper from the earlier studies testing the Law for Turkey are that, the causal link is examined within a trivariate framework and non-interest government expenditure is considered instead of total government expenditures.

Keywords: economic growth, government expenditure, Wagner´s law, trivariate causality test
JEL classification: E60, H50, O10

Published: January 1, 2013  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Oktayer, A., & Oktayer, N. (2013). Testing Wagner's Law for Turkey: Evidence from a Trivariate Causality Analysis. Prague Economic Papers22(2), 284-301. doi: 10.18267/j.pep.452
Download citation

References

  1. Abizadeh, S., Yousefi, M. (1998), "An Empirical Aanalysis of South Korea's Economic Development and Public Expenditures Growth." Journal of Socio-economics, Vol. 27, No. 6, pp. 687-701. Go to original source...
  2. Ahsan, S. M., Kwan, A. C., Sahni, B. S. (1992), "Public Expenditure and National Income Causality: Further Evidence on the Role of Omitted Variables." Southern Economic Journal, Vol. 58, No.3, pp. 623-634. Go to original source...
  3. Ahsan, S. M., Kwan, A. C., Sahni, B. S. (1996), "Cointegration and Wagner's Hypothesis: Time Series Evidence for Canada." Applied Economics, Vol. 28, No. 8, pp. 1055-1058. Go to original source...
  4. Akyuz, Y., Boratav, K. (2002), "The Making of the Turkish Financial Crisis." UNCTAD Discussion Papers, No: 158. April, 2002. Available from http://www.unctad.org/en/docs/dp_158.en.pdf
  5. Arisoy, I. (2005), "Wagner ve Keynes Hipotezleri Cercevesinde Turkiye'de Kamu Harcamalari ve Ekonomik Buyume Iliskisi." C.U. Sosyal Bilimler Dergisi, Vol. 14, No. 2, pp. 63-80.
  6. Ashworth, J. (1994), "Spurious in Mexico: A Comment on Wagner's Law." Public Finance/Finances Publiques, Vol. 49, No. 2, pp. 282-286.
  7. Bagdigen, M., Cetintas, H. (2004), "Causality between Public Expenditure and Economic Growth: The Turkish Case." Journal of Economics and Social Research, Vol. 6, No. 1, pp. 53-72.
  8. Bagdigen, M., Beser, B. (2009), "Ekonomik Buyume ile Kamu Harcamalari Arasindaki Nedensellik Iliskisinin Wagner Tezi Kapsaminda Bir Analizi: Turkiye Ornegi." ZKU Sosyal Bilimler Dergisi, Vol. 5, No. 9, pp. 1-17.
  9. Basar, S., Aksu, H., Temurlenk, S., Polat, O. (2009), "Turkiye'de Kamu Harcamalari ve Buyume Iliskisi: Sinir Testi Yaklasimi." Ataturk Universitesi Sosyal Bilimler Enstitusu Dergisi, Vol. 13, No. 1, pp. 301-314.
  10. Bird, R. M. (1971), "Wagner's Law: a Pooled Time Series and Cross Section Comparison." National Tax Journal, Vol. 38, pp. 209-218. Go to original source...
  11. Cavusoglu, A. T. (2005), "Testing the Validity of Wagner's Law in Turkey: The Bounds Testing Approach." Ankara Universitesi Siyasal Bilgiler Fakultesi Dergisi, Vol. 60, No. 1, pp. 73-87. Go to original source...
  12. Celasun, M. (1990), "Fiscal Aspects of Adjusment in the 1980s." In Tosun A., Dani, R. (eds.), The Political Economy of Turkey. London: The McMillan Press, pp.37-59. Go to original source...
  13. Chletos, M., Kollias, C. (1997), "Testing Wagner's Law Using Disaggregated Public Expenditure Data in the Case of Greece: 1958-1993." Applied Economics, Vol. 29, pp. 371-377. Go to original source...
  14. Courakis, A. S., Moura-Roque, F., Tridimas, G. (1993), "Public Expenditure Growth in Greece and Portugal: Wagner's Law and beyond." Applied Economics, Vol. 25, No. 1, pp. 125-134. Go to original source...
  15. Demirbas, S. (1999), "Co-integration Analysis-causality Testing and Wagner's Law: The Case of Turkey, 1950-1990." University of Leicester Discussion Papers, 99/2, available at: www.le.ac.uk/economics/research/RePEc/lec/leecon/econ99-3.pdf.
  16. Dickey, D. A., Fuller, W. A. (1979), "Distribution of the Estimators for Autoregressive Time Series with a Unit Root." Journal of the American Statistical Association, Vol. 74, pp. 427-431. Go to original source...
  17. Dritsakis, N., Adamopoulos, A. (2004), "A Causal Relationship between government Spending and Economic Development: an Empirical Examination of the Greek Economy." Applied Economics, Vol. 36, No. 5, pp. 457-464. Go to original source...
  18. Dutt, S. D., Ghosh, D. (1997), "An Empirical Examination of the Public Expenditure- Economic Growth Correlations." Southwest Oklahoma Economic Review, Vol. 12, No. 4, pp. 14-26.
  19. Elliott, G., Rothenberg, T. J., Stock, J. H. (1996), "Efficient Tests for an Autoregressive Unit Root." Econometrica, Vol. 64, No. 4, pp. 813-836. Go to original source...
  20. Engle, R. F., Granger, C. W. (1987), "Co-integration and Error Correction: Representation, Estimation and Eesting." Econometrica, Vol. 55, No. 2, pp. 251-276. Go to original source...
  21. Ertugrul, A., Selcuk, F. (2001), "A Brief Account of the Turkish Economy, 1980-2000." Russian and East European Finance and Trade, Vol. 37, No. 6, pp. 6-30.
  22. Ghali, H. K. (1998), "Government Size and Economic Growth: Evidence from a Multivariate Cointegration Analysis." Applied Economics, Vol. 31, pp. 975-987 Go to original source...
  23. Ghate, C., Zak, P. J. (2002), "Growth of Government and the Politics of Fiscal Policy." Structural Change and Economic Dynamics, Vol. 13, No. 4, pp. 435-455. Go to original source...
  24. Goffman, J. J., (1968), "On the Empirical Testing of Wagner's Law: a Technical Note." Public Finance/Finances Publiques, Vol. 3, No. 3, pp. 359-364.
  25. Gunaydin, I. (2000): "Turkiye Icin Wagner ve Keynes Hipotezlerinin Testi." Iktisat, Isletme ve Finans, No. 175, pp. 70-86. Go to original source...
  26. Gupta, S. P., (1967), "Public Expenditure and Economic Growth: a Time Series Analysis." Public Finance/Finances Publiques, Vol. 22, No. 4, pp. 423-461.
  27. Gyles, A. F. (1991), "A Time Domain Transfer Function Model of Wagner's Law: the Case of the United Kingdom Economy." Applied Economics, Vol. 23, No. 2, pp. 327-330. Go to original source...
  28. Halicioglu, F. (2003), "Testing Wagner's Law for Turkey, 1960-2000." Review of Middle East Economics and Finance, Vol. 1, No. 2, pp. 129-140.
  29. Hayo, B. (1994), "No Further Evidence of Wagner's Law for Mexico." Public Finance/Finances Publiques, Vol. 49, No. 2, pp. 287-294.
  30. Henrekson, M. (1993), "Wagner's Law: a Spurious Relationship?" Public Finance/Finances Publiques, Vol. 48, No. 2, pp. 406-415.
  31. Hondroyiannis, G., Papapetrou, E. (1995), "An Examination of Wagner's Law for Greece: a Cointegration Analysis." Public Finance/Finances Publiques, Vol. 50, No. 1, pp. 67-79.
  32. Isik, N., Alagoz, M. (2005), "Kamu Harcamalari ve Buyume Arasindaki Iliski." Erciyes Universitesi IIBF Dergisi, No. 24, pp. 63-75.
  33. Johansen, S. (1988), "Statistical and Hypothesis Testing of Co-integration Vectors." Journal of Economic Dynamics and Control, Vol. 12, pp. 231-254. Go to original source...
  34. Johansen, S., Juselius, K. (1990), "Maximum Likelihood Estimation and Inference on Co-integration with Applications to the Demand for Money." Oxford Bulletin of Economics, Vol. 52, pp. 169-210. Go to original source...
  35. Krzyzaniak, M. (1974), "The Case of Turkey: Government Expenditures, The Revenue Constraint and Wagner's Law." Growth and Change, Vol. 5, No. 2, pp. 13-19. Go to original source...
  36. Kumar, S., Webber, D. J., Fargher, S. (2009), "Wagner's Law Revisited: Cointegration and Causality Tests for New Zealand." University of the West of England Discussion Papers, No: 917.
  37. Legrenzi, G., Milas, C. (2002), "A Multivariate Approach to the Growth of Governments." Public Finance Review, Vol. 30, No. 1, pp. 56-76. Go to original source...
  38. Lin, C. (1998), "'Structural' Wagner's Law and Institutional Dynamics: an Evolutionary Perspective." Public Finance/Finances Publiques, Vol. 53, No. 2, pp. 175-194.
  39. Loizides, J., Vamvoukas, G. (2005), "Government Expenditure and Economic Growth: Evidence from Trivariate Causality Testing." Journal of Applied Economics, Vol. 8, No.1, pp. 125-152. Go to original source...
  40. Mann, A. J. (1980), "Wagner's Law: an Econometric Test for Mexico, 1925-1976." National Tax Journal, Vol. 33, No, 2, pp. 189-201. Go to original source...
  41. Musgrave, R. A. (1969), Fiscal Systems. New Haven and London: Yale University Press.
  42. Michas, N. A. (1975), "Wagner's Law of Public Expenditures: What Is Appropriate Measurement for a Valid Test." Public Finance/Finances Publiques, Vol. 30, No. 1, pp. 77-84.
  43. Mohammadi, H., Cak, M., Cak, D. (2008), "Wagner's Hypothesis: New Evidence from Turkey Using the Bounds Testing Approach." Journal of Economics Studies, Vol. 35, No. 1, pp. 94-106. Go to original source...
  44. Murthy, N. R. V. (1993), "Further Evidence of Wagner's Law for Mexico: an Application of Cointegration Analysis." Public Finance/Finances Publiques, Vol. 48, No. 1, pp. 92-96.
  45. Narayan, P. K. (2005), "The Saving and Investment Nexus for China: Evidence from Cointegration Tests." Applied Economics, Vol. 37, pp. 1979-1990. Go to original source...
  46. Oktayer, A. (2011), Turkiye'de Ekonomik Buyume ve Kamu Harcamalari Arasindaki Iliskinin Analizi: 1950-2009." Istanbul Universitesi Iktisat Fakultesi Mecmuasi, Vol. 61, No. 1 (forthcoming).
  47. Oktayer, N., Susam, N. (2008), "Kamu Harcamalari-Ekonomik Buyume Iliskisi: 1970-2005 Yillari Turkiye Ornegi." Ataturk Universitesi Iktisadi ve Idari Bilimler Dergisi, Vol. 22, No. 1, pp. 145-164.
  48. Oxley, L. (1994), "Cointegration, Causality and Wagner's Law: a Test for Britain 1870-1913." Scottish Journal of Political Economy, Vol. 41, No. 3, pp. 286-298. Go to original source...
  49. Ozatay, F. (1999) "Populist Policies and the Role of Economic Institutions in the Performance of the Turkish Economy." Yapi Kredi Economic Review, Vol. 10, No. 1, pp. 13-26.
  50. Payne, J. E., Ewing, B. T., Mohammadi, H. (2006), "Wagner's Hypothesis: New Evidence from the US Using the Bounds Testing Approach." In Ott, A. F., Cebula, R. T. (eds), The Elgar Companion to Public Economics, Empirical Public Economics. Edward Elgar, Aldershot, pp. 30-40. Go to original source...
  51. Peacock, A. T., Wiseman, J. (1961), The Growth of Public Expenditure in the United Kingdom. Princeton: Princeton University Press.
  52. Peacock, A. T., Wiseman, J. (1979), "Approaches to the Analysis of Government Expenditure Growth." Public Finance Quarterly, Vol. 7, No. 1, pp. 3-23. Go to original source...
  53. Perron, P. (1989), "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis." Econometrica, Vol. 57, No. 6, pp.1361-1401. Go to original source...
  54. Pesaran, M. H., Shin, Y., Smith, R. J. (2001), "Bounds Testing Approaches to the Analysis of Level Relationships." Journal of Applied Econometrics, Vol. 16, No. 3, pp. 289-326. Go to original source...
  55. Pryor, F. L. (1968), Public Expenditure in Communist and Capitalist Nations. London: George Allen and Unwin.
  56. Ram, R. (1986), "Causality between Income and Government Expenditure: a Broad International Perspective." Public Finance/Finances Publiques, Vol. 31, No. 3, pp. 393-413.
  57. Ram, R. (1987), "Wagner's Hypothesis in Time-series and Cross-section Perspectives: Evidence from Real Data from 115 Countries." Review of Economics and Statistics, Vol. 69, No. 2, pp. 194-204. Go to original source...
  58. Sari, R. (2003), "Kamu Harcamalarinin Dunyada ve Turkiye'de Gelisimi ve Turkiye'de Ulusal Gelir ile Iliskisi." Iktisat, Isletme ve Finans, Vol. 18, pp. 25-38. Go to original source...
  59. Singh, B., Sahni, B. S. (1984), "Causality between Public Expenditure and National Income." Review of Economics and Statistics, Vol. 66, No. 4, pp. 630-644. Go to original source...
  60. Sinha, D., (2007), "Does the Wagner's Law Holds for Thailand? A Time Series Study." MPRA Paper, No: 2560.
  61. Terzi, H. (1998), "Kamu Harcamalari ile Ekonomik Kalkinma Iliskisi Uzerine Ekonometrik Bir Inceleme." Iktisat, Isletme ve Finans, Vol. 13, pp. 67-78. Go to original source...
  62. Yamak, N., Kucukkale, Y. (1997), "Turkiye'de Kamu Harcamalari-Ekonomik Buyume Iliskisi." Iktisat, Isletme ve Finans, Vol. 131, pp. 5-14. Go to original source...
  63. Yay, G., Yay, T., Tastan, H. (2002), "The Impact of Budget Deficits on Output and Inflation in Turkey During the Period 1967-1999." Yapi Kredi Economic Review, Vol. 13, No. 2, pp. 55-67.
  64. Yay, T., Tastan, H. (2009), "Growth of Public Expenditures in Turkey During the 1950-2004 Period: An Econometric Analysis." Romanian Journal of Economic Forecasting Vol. 4, pp. 101-118.
  65. Zivot, E., Andrews, D. W. K. (1992), "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis." Journal of Business Economic Statistics, Vol. 10, pp. 251-270. Go to original source...

This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.