Wagner’s Law versus Keynesian Hypothesis: New Evidence from Recursive Regression-Based Causality Approaches

The main purpose of this study is to empirically investigate the stability of causal relationship between government expenditure and economic growth in the light of Wagner’s law and Keynesian hypotheses, in Malaysia. The results of the recursive regression-based causality tests indicate that the causal relationship between government expenditure and economic growth are not stable. The causality evidence support Wagner’s law from 1985 until approximately 2000, while the Keynesian hypothesis was present only before 1980.