Public Deficits, Government Spending, and Economic Growth: The Zhuhai Experience

This paper investigates the long-run relationships between government spending, public deficits, income, wages, and employed population, with the aim being to test the validity of the Buchanan-Wagner hypothesis and Wagner's Law in Zhuhai over the period 1985-2014. Our findings provide substantive evidence in favor of the existence of a long-run equilibrium relationship among variables. Public deficits and government spending have a significantly positive relationship supporting the Buchanan-Wagner hypothesis. In addition, an increase in GDP per capita promotes government spending indicating Wagner's Law does hold. Moreover, productivity in the private sector is higher than in the public sector. Finally, crowding out effect exists in the provision of government services.