Wagner's Law: An Econometric Test for Mexico, 1925-1976

Wagner's Law as it applies to developing countries has normally been tested employing cross-sectional data. However, a conceptually superior test of this hypothesis is to examine the same country at different levels of development using time-series analysis. Although this paper demonstrates that Wagner's principle is somewhat useful in at least three of six interpretations in describing Mexico's public sector growth over the period 1925-1976, the results appear to disprove the more relevant "share" versions. On the other hand, linkage is observed between public expenditure growth and changes in Mexico's industrial and demographic structures, changes which Wagner felt would lead to increasing state activity.