RELATIONSHIP BETWEEN PUBLIC EXPENDITURE AND NATIONAL INCOME: AN EMPIRICAL INVESTIGATION OF WAGNER’S LAW IN CASE OF PAKISTAN

This study examine the applicability of Wagner’s law (1883)*, national income led growth in public expenditure in the long run, in case of Pakistan for the period of 1979-2009. Moreover the study investigates the direction of causality between public expenditure and national income. To investigate the long run relationship, the ARDL approach to cointegration and for the causality Todo and Yamamoto approach is used in the study. The study concludes that there is no long runrelationship between public expenditure and national income at aggregate level. Furthermore, Todo and Yamamoto causality results asserted that there is no causality at all from directions, national income to public expenditure and public expenditure to national income.