Abstract

The aim of this paper is investigating Wagner’s law by using Iran’s time series data of period the 1960 - 2000. Carrying out the Engel-Granger cointegration test showed that GNP, government expenditure and government consumption expenditure were not cointegrated. Results showed that real income elasticity for non-proportional versions were bigger than one and for proportional ones were bigger than zero. In addition, Wagner’s low was accepted for Iran’s economy. Therefore along this period of time government expenditure growth and the size of government was a natural result of economic growth.

Key words: Government size, cointegration, causality.