Disaggregated Public Spending, GDP and Money Supply: Evidence for Italy

The aim of this article is to analyze the relationship between public spending and GDP controlling for the money supply in Italy for the period 1990-2010 at a disaggregated level, using a time series approach. After a brief introduction, a survey of the economic literature on this issue is shown, before estimating this nexus for ten items of public spending according to the COFOG functional classification. Cointegration tests reveal a long-run relationship between GDP, money supply and eight spending items. Moreover, Granger causality tests results show evidence in favour of Wagner’s Law in two cases (YG), while a bi-directional flow has been found in only one case. The Keynesian hypothesis (GY) is supported by five series of spending. Some notes on the policy implications of this analysis conclude the paper.