Causality analysis between public expenditure and economic growth of Polish economy in last decade

Abstract

This paper investigates the causal links between different kinds of budgetary expenditure and the economic growth of Poland. The empirical analysis was based on both the linear and nonlinear Granger causality tests and the aim was to evaluate the applicability of Wagner’s Law and contrasting theory formulated by Keynes. We based our research on aggregate and disaggregate quarterly data with the sub–division of public expenditure on human resources (HR), physical resources (PR), net interest payment (NIP) and other remaining budgetary expenditure (OTHER) for the period Q1 2000 to Q3 2008. Linear causality analysis showed that relation between total budgetary expenditure and economic growth is consistent with Keynesian theory. However, for the examined sub– categories of expenditure mixed results were reported supporting Keynesian theory (NIP), Wagner’s Law (OTHER) or none of them (HR and PR). Results of nonlinear causality analysis performed for unfiltered data also provided some support for Keynesian theory (HR and OTHER). However, after GARCH(1,1)– filtration of data nonlinear causality was not reported in any case.