Politická ekonomie
Politická ekonomie
Prague Economic Papers
University of Economics, Prague

Prague Economic Papers Vol. 22 No. 2

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

DOI: https://doi.org/10.18267/j.pep.452

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Asuman Oktayer, Nagihan Oktayer

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, trivariate causality test, Wagner´s law

JEL Classification: E60, H50, O10