Wagner in Ireland: An Econometric Analysis

Abstract

This paper presents an econometric analysis of Wagner’s Law in Ireland for the period 1970-2012. To estimate the long run relationship between government expenditure and gross national product per capita the bounds testing procedure of Pesaran and Shin (2001) is employed. The analysis is performed using both real and nominal variables. The paper finds that although government expenditure has been rising over the period in question the rate of growth has not outpaced growth in GDP per capita, thus weighing against Wagner’s Law. Results are robust across a selection of the most prominent model specifications in the literature, and to the volatility in government spending during the recent crisis. Some policy considerations are also explored.