Public Spending and National Income Before and After Economic Reform in China: An Application of Asymmetric Threshold Cointegration

Ching-Yang Liang, Chih-Wen Mao


This paper re-examines Wagner’s law of an expanding government sector with progress of the economy for China. This study divides the sample into two periods: “pre-reform” (1960–1978) and “post-reform” (1979–2009). The empirical results indicate that a long-run relationship between national income and public spending does exist in the “pre-reform” and “post-reform” period. The results show that unidirectional Granger causality from national income to public spending is found in the “post-reform” period, thus providing support for Wagner’s law. Alternatively, no causal relationship between public spending and national income is found in the “pre-reform” period, thus lending no support to the validity of Wagner’s law.


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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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