Causality between Government Consumption Expenditure and National Income: OECD Countries

Unlike existing empirical studies confined to polar cases (either a single country or a cross-section of many) yielding inconsistent results, this investigation of an intermediate size sample of twenty-four OECD countries discerns causal relations between government consumption expenditure and national income. The Granger bivariate model is used to establish the pattern of causality and the results are interpreted in terms of the three subgroupings of countries with varying rates of public expenditure growth from 1953 to 1982. Bidirectional causality emerges as the dominant pattern, with nineteen out of twenty-four cases revealing strong evidence of causal links between the two variables.