PUBLIC EXPENDITURE AND NATIONAL INCOME OF INDIA: INVESTIGATING WAGNERIAN LAW

This study tried to empirically test the causal relationship and the direction of causality between public expenditure and GDP in India, using annual data from 1966- 67 to 2015-16. The methodology employed was econometric model of the cointegration and the Granger Causality test. The estimates shows that the variables are stationary at first difference and follows I(1) order of integrations. Causality test estimates shows bidirectional causal relationship running from GDP to Revenue Expenditure and from Capital Expenditure to GDP. The estimates do not support the existence of Keynesian hypothesis and Wagner's Law at the disaggregate level in India.