A synthesis of empirical research on the validity of Wagner’s Law

In this paper we provide a synthesis of empirical research in the validity of Wagner’s law of the existing literature for the period 1969-2014. Wagner’s law attracted the interest of many authors and is still being discussed by policy makers and economists in relation to government spending expansion since it was applied by Adolph Wagner in the 1880s. There are two different hypotheses about the expansion of state activity. Firstly, the size of government activity is tested in endogenous growth models, while the second suggest that the economic activity is exogenous to the economic growth (Keynesian view). Additionally, we will present the previous empirical work in this topic. Since the translation of Wagner’s “law” in 1950’s, a large number of authors tested various specifications of the law. These studies used both time series and panel data sets and empirically examined the law for a single country and for a group of countries (multi-country studies). Furthermore, there are studies using data on government expenditure at the provincial or state level. Existing studies in this topic vary in the country selection. They used data for developed, developing countries or group of both, while most of them examined developed or industrial countries. Finally, there are studies examined the Wagner’s against Keynesian hypothesis. All these studies found different empirical results: support, no support or mixed results. Conflicting findings in this field are not surprising because of the diverse theoretical predictions and also because countries may be at different stages of economic development; thus, the debate about the relationship between government spending and economic growth remains an unresolved issue