New insights into an old issue: exploring the nexus between government expenditures and economic growth in the United States

ABSTRACT

This study investigates the correlation between government expenditures and economic growth by applying the wavelet coherence approach for the period of 1960Q2 – 2019Q3 in the United States. Two main concepts regarding the correlation between government expenditures and economic growth are the renowned Keynesian approach, which argues that government expenditures lead economic growth, and Wagner’s Law, which advocates the opposite. Our results indicate that economic growth leads government expenditures in the long run, whereas government expenditures only enhance economic growth in the short run and in periods of recession.

KEYWORDS:

• Government expenditure
• economic growth
• United States
• wavelet coherence

Disclosure statement

No potential conflict of interest was reported by the authors.