Evidence For Non-Linear Causality Between Public Spending And Income In The European Union Countries

Abstract

This paper deploys the non-linear Granger causality methods in order to determine the causal relationship between national income and government expenditure in the European Union countries over the post-war time period. For this purpose, six alternative functional forms of Wagner’s law have been adopted. The empirical results indicate support for non-linear causality between income and government expenditure and they may prove useful theoretical and empirical research for the regulators and the policy makers.