Analyzing Public Spending and Income Links in CIVETS

A substantial body of research has emerged within the economic discourse surrounding the intricacies of public expenditure and its relationship with national income. Researchers have dedicated significant effort to investigating the nature of this interdependence. This study endeavors to make a meaningful contribution to the extant body of research by assessing the validity of two prominent perspectives—those of Wagner and Keynes—within the context of the CIVETS countries (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa) for the time period of 1995-2023, for both absolute and relative versions. The Westerlund cointegration test and Dumitrescu-Hurlin panel causality test with a bootstrap approach were utilized to examine the dynamic interactions between public spending and national income. The findings indicate that, in its absolute form, Wagner's Law is supported; however, no significant relationship is observed in the case of the Keynesian perspective. The findings indicate that the influence operates from national income to public expenditure, rather than the reverse, in the case of CIVETS countries. This finding contributes to the ongoing discussion regarding the directionality of causality between public spending and national income, emphasizing the relevance of Wagner's Law in the context of emerging market economies.