Wagner's law revisited: cointegration and exogeneity tests for the USA

Abstract

This paper re-examines Wagner's hypothesis of an expanding government sector with progress of the economy using advanced econometric techniques such as cointegration and exogeneity tests not used in previous empirical studies. This study also uses much longer time series data for the USA than previously utilized. The empirical results based on cointegration and exogeneity tests provide strong support for the hypothesis for the USA.