Keynes versus Wagner: public expenditure and national income for three African countries

Abstract

The public expenditure/income hypothesis has long been debated in economics. Following Keynes, public expenditure is seen as an exogenous factor to be used as a policy instrument to influence growth. On the other hand, Wagner argues that expenditure is an endogenous factor or an outcome, not a cause, of growth in national income. The purpose of this paper is to apply both the Granger and Holmes-Hutton statistical procedures to test the income-expenditure hypothesis for three African countries-Ghana, Kenya and South Africa. We find that the hypothesis of public expenditure causing national income is not supported by the data for these African countries.