The study explores the nature and direction of causal relationship between public spending and economic progress for India, using annual time series data for the period 1970-2016. A three step procedure is followed using modern econometric techniques based on cointegration analysis for determining the causal linkage between government expenditure and GDP with the idea of validating or negating the soundness of Wagner’s law for India, particularly in the long-run. Although the study arrives at mixed results of causality between the Peacock-Wiseman and Gupta/Michas models of Wagner’s hypothesis; one thing is clear that in either case, the Wagner’s law fails to hold true for India. The reverse causality supporting the Keynesian hypothesis though is valid in the long-run; suggesting a larger role of government activities and spending in influencing and triggering economic growth of the nation.
Cite this article:
Shradha H. Budhedeo. Cointegration, Causality and Wagner’s Law: An Econometric Analysis for India. Res. J. Humanities and Social Sciences. 2018; 9(4): 785-792. doi: 10.5958/2321-5828.2018.00132.8