Nexus between Government Expenditure and Economic Growth in Pakistan: Comparative Analysis of Wagner’s Law and Keynes’s View

Abstract

Objective: The major objective of this study is to empirically investigate the existence of Wagner’s rule, Keynes’s views, and Wagner’s additional versions in the short and long run for the case of Pakistan.

Design/Methodology/Approach: The simple OLS method is used to check the existence of Wagner’s law, and its variants for the period of 1970 to 2021 in the case of Pakistan. For checking long-run relationships of Wagner’s variants, the Johansen co-integration test was used.

Findings: The OLS results confirmed the existence of Wagner’s in Pakistan. The Johansen co-integration results explored that there is no long-run co-integration for Pakistan’s economy. The Granger causality results revealed that only three versions have bi-directional causality and favour Keynes’s view.

Originality/Value: The study implicates the government’s final consumption expenditure for public welfare that aims to spur the economic growth of an economy.

Theoretical/Practical Implications of the Findings: The policymakers should set conducive policies for the increase in government final consumption expenditure for public welfare. Developing countries such as Pakistan should follow Keynes’s view.