Evidence For Non-Linear Causality Between Public Spending And Income In The European Union Countries

Abstract

<p class="MsoSubtitle" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: Times New Roman;"><span style="color: black; font-size: 10pt; font-weight: normal; text-decoration: none; text-underline: none;">This paper deploys the non-linear Granger causality methods in order to determine the causal relationship between national income and government expenditure in the European Union countries over the post-war time period. For this purpose, six alternative functional forms of Wagner’s law have been adopted. The empirical results </span><span style="font-size: 10pt; font-weight: normal; text-decoration: none; text-underline: none;">indicate support for non-linear causality between income and government expenditure and they may prove useful theoretical and empirical research for the regulators and the policy makers. </span></span></p>