Reconsidering Wagner’s law: evidence from the functions of the government

ABSTRACT

We revisit Wagner’s law by function of government expenditure. Using data of 14 European countries between 1996 and 2013, we apply panel data and SUR methods to assess public expenditure–income elasticities. We find that some functions of government spending for a few countries (e.g. Austria, France, the Netherlands and Portugal) validate Wagner’s law. For the Netherlands, expenditures with environment protection increase more than proportionately to economic growth, and for France that is the case of spending in housing and community amenities. In addition, Greece is the only country where two public spending items react more than one to one to growth.

KEYWORDS:

• Fiscal policies
• government spending
• SUR estimation
• Wagner’s law

JEL CLASSIFICATIONS:

• C33
• E62
• H50
• O47.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The 10 United Nations COFOG categories are as follows: 01 – General public services; 02 – Defense; 03 – Public order and safety; 04 – Economic affairs; 05 – Environmental protection; 06 – Housing and community amenities; 07 – Health; 08 – Recreation, culture and religion; 09 – Education; 10 – Social protection.

Additional information

Funding

UECE is supported by Fundação para a Ciência e a Tecnologia (Portuguese Foundation for Science and Technology).