The Wagner s Law: Time Series Evidence for Turkey, 1960-2006

Abstract

In this paper, the Wagner's Law for Turkey for the period 1960-2006 is analyzed. Wagner's law investigates whether there is a long-run relationship between government expenditures and the gross national product of a country. The paper uses modern time-series econometric techniques to test the validity of the law's proposition. Cointegration analysis is used to test the validity of Wagner's law. Our results suggest that Wagner's law is validated for two formulations using the definition given by Florio and Colutti (2005) according to the elasticity measures for the period under consideration. In this paper, the Toda-Yamamoto tests of Granger causality, short- and long-run properties of the model within an error correction model are examined. Estimated error correction models indicate that the Granger-causality between government expenditures and gross domestic product is bi-directional in the long-run.