Does the Wagner's Law Hold for Nigeria? : 1950-2008

Abstract

Wagner’s Law suggests that as the economic activity of a country increases, so does its government expenditure. This paper examines the validity of Wagner’s law in Nigeria for the time period 1950-2008. For investigating the existence of a long run and causal relationship between government expenditure and national income, three of the most advanced econometric methods, the Johansen maximum likelihood cointegration method, error correction modeling and the Granger causality test have been applied to Musgrave (1969) version of the functional interpretations of the law. All the results of the empirical estimations point to the fact that Wagner’s Law is supported for Nigerian economy during the period under review. Policy wise, this contribution suggests that Government of Nigeria cut back on public capital spending because of lack of transparency in the procurement of capital projects which has left such expenditures unproductive. Government should see the urgent need to provide environment conducive for private sector active participation in economic activities and implement with all sincerity the on-going Public Private Partnership Programme (PPPP). These will ensure increased efficiency in the allocation of resources and tend to reduction in government size. The results further imply that development plans of Nigeria must incorporate such fiscal policy measures that would guarantee commensurate growth in government revenue to accommodate the expected growth in government size.

Keywords: Wagner’s law; causality; government size; growth,