On the linkage between government expenditure and output: empirics of the Keynesian view versus Wagner’s law

• Published in: Economic change and restructuring Vol. 54; no. 2; pp. 265 - 303
• Main Authors: Arestis, Philip, Şen, Hüseyin, Kaya, Ayşe
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-05-2021; Springer Nature B.V
• Subjects: Causality; Classification; Development Economics; Economic Growth; Economic Policy; Economics; Economics and Finance; Expenditures; Government spending; Health care expenditures; Housing; International Economics; Macroeconomics/Monetary Economics//Financial Economics; Multiplier; Political Economy/Economic Systems; Social protection; E62; Fiscal policy; H50; Wagner’s law; Turkey; Linear and nonlinear Granger-causality tests; Keynesian view of government expenditure; E60
• ISSN: 1573-9414; 1574-0277
• DOI: 10.1007/s10644-020-09284-7

Using disaggregated data based on the classification of functions of government (COFOG), this study seeks to verify the Keynesian view versus Wagner’s law on the relationship between government expenditure and output, considering Turkey as a case study. To do so, the study attempts to capture the nature of the causal relationship between the two variables by applying linear and nonlinear Granger-causality tests. Rather than Wagner’s law, the empirical findings of the study provide supportive evidence for the Keynesian view, subject to the economically meaningful components of government expenditures considered. Overall, the empirical findings show that government expenditures on defense, economic affairs, education, health, housing and community amenities, and social protection positively affect output that comes out through fiscal multiplier and investment-accelerator mechanisms proposed by John Maynard Keynes.