Estimating the permanent income elasticity of government expenditures: evidence on Wagner's law based on oil price shocks

Brueckner, Markus, Chong, Alberto and Gradstein, Mark (2012) Estimating the permanent income elasticity of government expenditures: evidence on Wagner's law based on oil price shocks. Journal of Public Economics, 96 11-12: 1025-1035. doi:doi:10.1016/j.jpubeco.2012.08.002


Author Brueckner, Markus
Chong, Alberto
Gradstein, Mark
Title Estimating the permanent income elasticity of government expenditures: evidence on Wagner's law based on oil price shocks
Journal name Journal of Public Economics   Check publisher's open access policy
ISSN 0047-2727
Publication date 2012-12
Sub-type Article (original research)
DOI doi:10.1016/j.jpubeco.2012.08.002
Open Access Status
Volume 96
Issue 11-12
Start page 1025
End page 1035
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Language eng
Abstract This paper provides instrumental variable estimates of the permanent income elasticity of government expenditures. It uses annual variation in the international oil price weighted with countries' average oil net-export GDP shares as a plausibly exogenous source of within-country variation in countries’ permanent income. The short-run estimates of the permanent income elasticity are robust across alternative specifications and are below one: the estimated elasticity coefficients range between 0.3 and 0.6 and have standard errors of 0.1 and 0.4, respectively. Point estimates of long-run elasticities are somewhat larger but still smaller than unity. The investment component of government spending is found to be more elastic than the consumption component, whereas elasticity differences between rich and poor countries are insignificant.
Keyword Wagner law
Permanent income elasticity of government spending
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: School of Economics Publications
 
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Created: Thu, 05 Feb 2015, 16:36:00 EST by Alys Hohnen on behalf of School of Economics