Testing the validity of Wagner's Law

The study of the relationship between public spending and economic growth has recently gained significant attention worldwide. The aim of this study is to test the validity of Wagner law in Rwandan economy for the period between 1970 and 2019. Gregory-Hansen co-integration and Tado-Yamamoto causality test were used when analyzing the study series due to the breakage that occurred in 1994. However, Johansen co-integration and Granger causality also were applied in this analysis. By examining the findings of the study, only the variables in the Pryor (1968), Musgrave (1969) and Mann (1980) models in the Johansen test had a long-term relationship. The results from Gregory-Hansen test show that in the models of Wagner's law, all variables have long-term relationship. By Looking at the results of causality, the Gupta and Musgrave version supported the Keynesian hypothesis in the Granger test, while the Pryor version showed that Wagner's law was valid. On the other hand, Toda-Yamamoto test results show that only the Gupta model was significant by supporting the Keynesian hypothesis.