Government expenditure and national income in Mexico: Keynes versus Wagner

This article examines the relationship between government expenditure and national income in Mexico by testing the validity of Wagner's law and Keynes's hypothesis for the period between 1950 and 1999. More specifically, by applying time-series analysis, government-spending and national-income variables were found to be nonstationary and cointegrated, thus satisfying a long-run equilibrium condition. In addition, through the application of Granger causality tests to error-correction models, unidirectional causality, running from Gross Domestic Product (GDP) to government-expenditure variables, could be established between the variables and, therefore, only Wagner's law was found to be valid in Mexico's case for the period of study.