ABSTRACT
The present study empirically analyzes the validity of Wagner's Law for Indian economy. With the use of annual time series data from 1970–71 to 2013–14, all the six versions of Wagner's Law have been analyzed to test the relationship between government expenditure and gross domestic product. Wagner's Law states that the economic growth is the causative factor of the growth of the public expenditure. The study applied the unit root test and cointegration test to find the long-run relationship between government expenditure and gross domestic product. The present study employed the various econometric techniques such as unit root test, cointegration, and causality analysis for empirical analysis. The empirical analysis under study inferred mixed results of Wagner's Law for Indian economy, where four versions, namely Peacock, Gupta, Guffman, and Musgrave, found valid for Indian economy. The study concluded that the Wagner's Law is valid for the Indian economy except the Pryor and Mann Versions of the Wagner's Law.
Notes
1 When the mean and variance of the series are constant, it is considered as stationary series.
2 The estimation of equations is same for all the versions except the change in the variables. Here we show the model specification for the first version and it will be in similar way for rest of the versions.
3 The estimation of the model for rest of the version of the Wagner's Law is similarly specified as this model.