Abstract

The objective of the study is to see how far Wagner’s law validity can be applied in the Malaysian government development expenditure. According to Wagner’s law, fundamental economic growth is a determinant to the public sector growth. The public sector is said to be able to grow at a very high rate when compared to the product growth (income). Accordingly, it can be said that government expenditure behaves elastic with the national product and the interpretation of Wagner’s law can provide important policy implications. Using a method known as the Autoregressive Distributed Lag model (ARDL) and the border test (bound test) introduced by Pesaran et al. (2001), this study found that four out of five version Wagner basic laws show an interrelationship between the national product and government development expenditure. The long-term analysis also showed that national product has a positive relationship and is significant in influencing government development expenditure. Therefore, it can be summarized that this Wagner’s law is still relevant to be applied in Malaysia.

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