Empirical Verification of Wagner's Law In Ethiopia

Abstract

The aim of this study was to investigate the relationship between economic growth and government expenditure in Ethiopia. Using annual data from 1974 to 2009 and Engel-Granger cointegration method six versions of Wagner's Law were tested. The result shows that only the Peacock and Wiseman (1961) version which relates real government expenditure with real GDP support the law.  Further, a unidirectional causality was observed from economic growth to government consumption expenditure.