Abstract

We examine the applicability of Wagner's Law in Jordan by testing the relationship between economic growth and governmental expenditures, then measuring the effectiveness of the output growth in reducing the governmental budget deficit, and followed by exploring the dependence of governmental expenditure on the governmental domestic revenues and foreign grants over the period 1980–2013. Following Peacock and Wiseman (1979) modeling to test for Wagner’s Law, It was found that the elasticity of the real expenditures with respect to the real GDP is positive and greater than 1, which conforms and validates Wagner's Law in the case of the real governmental expenditures and its components. Furthermore, the real current expenditures had the highest elasticity, indicating that their responsiveness to the real GDP is greater than that of the real capital expenditures. We also found that the elasticity of the real total governmental revenues and grants is positive and greater than 1, but less than the elasticity of governmental revenues. However, the elasticity of the real local revenues, the real income tax revenues, and the real taxes on domestic transactions are all positive and greater than 1. Interestingly, we found that the elasticity of the real foreign trade revenues is, while positive, too low and less than 1. This fact explains the relative low value of the elasticity of the real total governmental revenues with respect to the real GDP since the real foreign trade taxes represent the major part of the local revenues.

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