Wagner’s Law: Empirical Evidence from Saudi Arabia using the Augmented-NARDL Method

Abstract

This study reinvestigates the relationship between government expenditure and economic growth using several types of Wagner’s Law. Using Saudi Arabian data covering the period between 1971 and 2019, the authors estimate the study models using the new augmented NARDL method, which, in turn, is based on Sam, McNown, and Goh’s (2019) augmented ARDL. The estimation shows that Goffman’s (1968), Peacock-Wiseman’s (1961), Gupta’s (1967), and Murthy’s (1993) models succeed in proving the relationship between economic growth and government expenditures in Saudi Arabia. The Peacock-Wiseman (1961), Murthy (1993), and Gupta (1967) models reflect symmetric relationships in the long term, whereas the Goffman model indicates an asymmetric relationship. Based on these findings, the authors recommend that Saudi Arabia rationalize its current government expenditure and focus on developmental expenditure to optimize economic growth and personal income.

Funding Statement: This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sector.

Ethical Compliance: This article does not contain any studies with human participants or animals performed by any of the authors.