Author(s)

Federico Guerrero, Elliott Parker

Department of Economics, University of Nevada, Reno, USA.

We consider whether there is statistical evidence for a causal relationship between federal government expenditures and growth in real GDP in the United States, using available data going back to 1791. After studying the time-series properties of these variables for stationarity and cointegration, we investigate Granger causality in detail in the context of a Vector Error Correction Model. While we find causal evidence that faster GDP growth leads to faster growth in government spending, we find no evidence supporting the common assertion that a larger government sector leads to slower economic growth.

Long-Term Economic Growth; Federal Government Size; Wagner’s Law; United States; Cointegration; Granger Causality; Vector Autoregression; Vector Error Correction Model

F. Guerrero and E. Parker, "The Effect of Federal Government Size on Long-Term Economic Growth in the United States, 1791-2009," Modern Economy, Vol. 3 No. 8, 2012, pp. 949-957. doi: 10.4236/me.2012.38120.