The relation between public expenditures and economic growth: Analysis of the Turkish economy(1998-2012)

The relation between public expenditures and economic growth, has long been a subject of debate in both teoretical and empirical economic literature. The two major approaches are Wagner Law and Keynes Hypothesis on the relationship between public expenditures and economic growth. Wagner, who pointed out that the direction of the relationship is from the economic growth to public expenditure. On the contrary, Keynes, who revealed that the direction of the relationship is from public expenditure to the economic growth. The purpose of this study, the framework of Wagner and Keynesian approaches, using the period 1998-2012 quarterly data, is to test the relationship between public expenditures and economic growth in Turkish Economic. Johansen Cointegration, Granger Causality Test was used to achieve this goal. According to the findings of the study, a causality relationship was not from public expenditure to economic growth, but a causality relationship was found from economic growth to public expenditure. This condition, it shows that Wagner Law is valid in examined period in Turkish economy. We expanded to include the period 1987-2012 years in our study, using the same econometric methods: results do not support the Wagner Law. Key Words: Public Expenditures, Economic Growth, Wagner Law, Keynes Hypothesis.