全部 标题 作者
关键词 摘要

OALib Journal期刊
ISSN: 2333-9721
费用:99美元

查看量下载量

相关文章

更多...

Wagner's Law in Sri Lanka: An Econometric Analysis

DOI: 10.5402/2012/573826

Full-Text   Cite this paper   Add to My Lib

Abstract:

This study examines whether there is empirical evidence that Wagner's law holds in the Sri Lankan economy using time series annual data over the period from 1960 to 2010 for Sri Lanka, applying cointegration and error correction modeling (ECM) techniques. In particular, this study keeps a special focus to examine the validity of six versions of Wagner's hypothesis, which support the existence of long-run relationship between public expenditure and economic growth. The empirical evidence of this study indicates that while there prevail is a short-run relationship between public expenditure and economic growth, the long-run results showed no strong evidence in support of the validity of the Wagner’s law for Sri Lankan economy. Granger causality analysis also confirms this result. Therefore, the findings of this study pave to broaden this study further for a deeper understanding about the relationship between public expenditure and economic growth by giving more attention on individual items of public expenditure and by including more macroeconomic variables in the econometric model using different methodology in future. 1. Introduction Fiscal policy is a fundamental instrument that can be used to lessen short-run fluctuations in output and employment. Meanwhile, in macroeconomic issues such as high unemployment, inadequate national savings, excessive budget deficits, and large public debt burdens, fiscal policy has been acknowledged to hold center stage in policy debate in both developed and developing economies. During the global economic recession of the 1930s, the government sectors of both developed and developing economies played a vital role in stimulating economic growth and development, as advocated by Keynes. In such situations every economy attempted to promote its economic growth through increasing government expenditures and reducing taxes. These empirical achievements and the Keynesian theoretical outpourings generated considerable interest among economists and policy makers to the issues of fiscal policy as a stabilising force. Public expenditure is a fundamental instrument that influences the sustainability of public finances via effects on fiscal balances and government debt. Moreover, public expenditure can also pursue other objectives, including output, employment, and redistribution, which can contribute to economic welfare. On the other hand, tax policy can also be used to achieve the fiscal policy goals of fair distribution of income and wealth, efficient resource allocation, economic stabilization, and so on, [1]. Taxes affect

References

[1]  R. A. Musgrave and P. B. Musgrave, Public Finance: In Theory and Practice, Mc-Graw-Hill International, NewYork, NY, USA, 1989.
[2]  A. Wagner, “Extracts on public financ,” in Classics in the Theory of Public Finance, R. A. Musgrave and A. T. Peacock, Eds., Macmillan, London, UK, 1958.
[3]  J. M. Keynes, General Theory of Employment, Interest and Money, Harcourt, Brace and Co, New York, NY, USA, 1936.
[4]  W. A. Dilrukshini, “Expenditure and economic growth in Sri Lanka: co-integration analysis and causality testing,” Staff Studies, vol. 34, pp. 51–68, 2004.
[5]  S. Herath, “Size of the government and economic growth: an Empirical Study of Sri Lanka,” SRE—Discussion Papers 2010/05, WU Vienna University of Economics and Business, Vienna, Austria, 2010.
[6]  R. M. Bird, “Wagner’s law of expanding state activity,” Public Finance, vol. 26, no. 1, pp. 1–26, 1971.
[7]  A. T. Peacock and J. Wiseman, Growth of Public Expenditure in the United Kingdom, NBER and Princeton: Princeton University Press, Cambridge, UK, 1961.
[8]  S. P. Gupta, “Expenditure and economic growth: a time series analysis,” Public Finance, vol. 22, no. 4, pp. 111–120, 1967.
[9]  C. W. J. Goffman, “On the empirical testing of wagner’s law: a technical note,” Public Finance, vol. 23, no. 3, pp. 359–364, 1968.
[10]  F. L. Pryol, Public Expenditure in Communist and Capitalist Nations, George Allen and Unwin, London, UK, 1969.
[11]  A. J. Mann, “Wagner’s law: an econometric test for Mexico, 1925–1976,” National Tax Journal, vol. 33, no. 2, pp. 189–201, 1980.
[12]  K. D. Ranjan and C. Sharma, “Expenditure and economic growth: evidence from India,” The ICFAI University Journal of Public Finance, vol. 6, no. 3, pp. 60–69, 2008.
[13]  B. Singh and B. S. Sahni, “Causality between public expenditure and national income,” The Review of Economics and Statistics, vol. 66, no. 4, pp. 630–644, 1984.
[14]  F. G. Castles and S. Dowrick, “Impact of government spending levels on medium term economic growth in the OECD, 1960–1985,” Journal of Theoretical Policies, vol. 2, pp. 173–204, 1990.
[15]  S. Devarajan, V. Swaroop, and H. F. Zou, “The composition of public expenditure and economic growth,” Journal of Monetary Economics, vol. 37, no. 2, pp. 313–344, 1996.
[16]  E. Dogan and T. C. Tang, “Government expenditure and national income: causality tests for five south East Asian countries,” International Business and Economic Research Journal, vol. 5, no. 10, 2006.
[17]  S. Verma and R. Arora, “The Indian economy support Wagner’s law? An econometric analysis,” Eurasian Journal of Business and Economics, vol. 3, no. 5, pp. 77–91, 2010.
[18]  M. Afzal and Q. Abbas, “Wagner’s law in Pakistan: another look,” Journal of Economics and International Finance, vol. 2, no. 1, pp. 12–19, 2012.
[19]  Y. Zheng, J. Li, X. L. Wong, and C. Li, “An empirical analysis of the validity of Wagner’s law in China: a case study based on Gibbs sampler,” International Journal of Business and Management, vol. 5, no. 6, 2010.
[20]  P. A. Olomola, “Cointegration analysis-causality testing and Wagner’s law: the case of Nigeria,” Journal of Social and Economic Development, vol. 6, no. 1, pp. 76–90, 2004.
[21]  J. Komain and T. Brahmasrene, “Relationship between government expenditures and economic growth in Thailand,” Journal of Economics and Economic Education Research, vol. 8, no. 1, pp. 93–102, 2007.
[22]  R. J. Barro, “Economic growth in a cross section of countries,” Quarterly Journal of Economics, vol. 106, no. 2, pp. 407–443, 1991.
[23]  J. Loizides and G. Vamvoukas, “Expenditure and economic growth: evidence from trivariate causality testing,” Journal of Applied Economics, vol. 8, pp. 125–152, 2005.
[24]  B. Yu, S. Fan, and A. Saurkar, “Does composition of government spending matter to economic growth?” in Proceedings of the International Association of Agricultural Economists Conference, Beijing, China, August 2009, http://ageconsearch.umn.edu/bitstream/51684/2/IAAE%20government%20spending.pdf.
[25]  A. Ramayandi, “Growth and government size in Indonesia: some lessons for the local authorities,” Working Papers in Economics and Development Studies 2003/02, Department of Economics, Padjadjaran University, 2003.
[26]  S. Alam, A. Sultana, and M. S. Butt, “Does social expenditures promote economic growth? A multivariate panel cointegration analysis for Asian Countries,” European Journal of Social Sciences, vol. 14, no. 1, pp. 44–54, 2010.
[27]  Central Bank of Sri Lanka, Annual Reports, Various Years.
[28]  R. F. Engle and C. W. J. Granger, “Cointegration and error correction: representation, estimation, and testing,” Econometrica, vol. 55, no. 2, pp. 251–276, 1987.
[29]  D. Gujarati, Basic Econometrics, Mc.Graw-Hill International Edition, NewYork, NY, USA, 3rd edition, 1995.
[30]  C. W. J. Granger and P. Newbold, “Spurious regressions in econometrics,” Journal of Econometrics, vol. 2, no. 2, pp. 111–120, 1974.
[31]  C. W. J. Granger, “Some properties of time series data and their use in econometric model specification,” Journal of Econometrics, vol. 16, no. 1, pp. 121–130, 1981.

Full-Text

Contact Us

service@oalib.com

QQ:3279437679

WhatsApp +8615387084133