Testing Wagner's Law For The European Union Economies

Abstract

This paper examines the validity of Wagner’s law in the EU-15 member-states for the time period 1949-1998. For investigating the existence of a long run and causal relationship between government expenditure and national income, three of the most advanced econometric methods, the Engle-Granger cointegration test, the Johansen maximum likelihood method and the Granger causality test have been applied to six alternative functional interpretations of the law. The results are very ambiguous and our main findings suggest that the validity or invalidity of Wagner’s law is very sensitive to the method applied.