Abstract:

The relationship between economic growth and government spending has long been studied in the literature. In general, public expenditure is the sum of the elements that make up the cost of all the work done by government to fulfill its duties and responsibilities. Public expenditure is of great importance to national economies. This is because this expenditure enables the efficient allocation of consumption, production, investment and resources and has a direct impact on the Gross Domestic Product. Keynes claims that government spending is an external factor and increases economic growth, while Wagner argues that government spending is an internal factor and economic growth affects this spending. In this study, the validity of Wagner's law and Keynes hypothesis was investigated using Autoregressive Distributed Lag Bounds test, fully modified ordinary least squares, dynamic ordinary least squares and canonical cointegrating regression estimators for Turkey for the period 1980 to 2017. The results of Bounds test showed that there is a long-run relationship between economic growth and government expenditure. According to the results of the autoregressive distributed lag, fully modified ordinary least squares, dynamic ordinary least squares and canonical cointegrating regression estimators, an increase in government spending has a positive impact on economic growth in the long run. These results show that Keynes hypothesis is valid in Turkey. Therefore, in order to maintain economic growth, public spending should be used effectively and efficiently.

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