Cointegration and Causality between Public Expenditure and Economic Growth: Case of Kyrgyzstan

According to Wagner’s law there is unidirectional relationship from economic growth to public expenditure. Wagner’s states that increase of national income leads to faster growth of public expenditure. In other words, out of economic and social development in the country, people will demand more public goods and it will increase public expenditure at a faster rate than national income. This study is analyzing the long term and causality relationship between public expenditure and economic growth in Kyrgyzstan and tests the validity of Wagner's law in Kyrgyz economy by using an ARDL and Error Correction models over the period 1995 to 2014. Empirical results showed that there is an unidirectional causality relationship between economic growth and public expenditure in long term. Empirical evidence is support the validity of Wagner’s law in Kyrgyz economy