The validity of Wagner’s Law in Romania during 1995-2015

The aim of this paper is to investigate the relationship between government expenditure and economic growth commonly known as Wagner’s law for one single Central and Eastern European country namely Romania. Using a dataset ranging from 1995 to 2015, we apply latest econometric time series techniques such as unit root test, Johansen cointegration and Granger causality test. The cointegration tests indicate support for Wagner’s hypothesis in all of its five versions, thus suggesting the existence of long-run relationship between government spending and national outcome. The causality tests show the absence of any short-run relationship from economic outcome to government expenditure in three out of five versions. However, taking into consideration that in its original formulation Wagner’s law explored the secular correlation between output and government commitments, we can state that the long run cointegration is more consistent with Adolph Wagner’s perspective