Wagner’s Law And The Causal Nexus Between Government Expenditures And Tax Receipts: An Empirical Study Of Ghana

"Wagner's law is tested by using the traditional versions and our own versions which account for prices. Results show that Wagner's law exists in Ghana. However, there is no empirical support to the view that increases in government expenditures lead to economic growth. We also fail to' lend empirical support to Friedman and Buchanan- Wagner's claim that changes in taxes cause changes in government expenditures. There is no empirical evidence to support the view that budgetary processes of the country were unduly influenced along antagonistic party lines over the period of study. Rather, we find that Barro's view on fiscal policy exists in the country. This suggests that neither tax cuts proposed by Friedman, nor tax hikes advocated by Buchanan-Wagner, is an ideal policy that can be implemented to reduce the growing fiscal deficits and national debt. The optimal policy for reducing both fiscal deficits and national debt is to cut government expenditures. We also find that changes in interest rates influence economic growth, which means that monetary policy is also important in stabilizing the Ghanaian economy."