ABSTRACT

This paper attempts to test Wagner and Keynesian hypothesis by examining econometrics tests the relationship between economic growth and total government expenditures as well as its various government instruments as taxes, total debt stocks, public incomes and consolidated budget for the Turkish case over the period of 1960-2009. the relationship between Wagner's and Keynes's hypothesis and ecenomic growth is analyzed by using econometric tests. In the study, GNP and public finance instruments (taxes, public revenues, the total debt stock, consolidated budget and public expenditure) are used as variables. ADF, PP and KPSS unit root tests, Granger causality and TodaYamamoto-Dolado-Lütkepohl (MWALD) causality tests are used. Moreover; ZivotAndrews breaking test is also used. Short and long term relationships are examined in Granger causality tests MWALD causality tests. While Granger causality tests allow for “short-term” causality analysis, MWALD causality tests allow for “long-term” causality analysis. Test results confirm the Keynes's hypothesis. Causal relationship has been found. In the empirical study on Turkey, the effect of the increase in public spending on economic growth is one-way, positive and significant. While there is no causality from economic growth towards public expenditures that confirms Wagner hypothesis in the short term, there is a bidirectional causality relationship in the long term. There are many variables on economic growth in Turkey; however variables that are about public finance instruments are more obvious.