Title:
WAGNER'S LAW VS KEYNES' HYPOTHESIS: EMPIRICAL EVIDENCE FROM JAVA AND SUMATRA, INDONESIA

Authors:
Roosemarina Anggraini Rambe, Retno Agustina Eka Putri, Indonesia

Abstract:

The purpose of this study is to examine the impact of real GRDP on government expenditure, or vice versa, and to see whether Wagner's law or Keynes' hypothesis applies in existing and newly-split districts/cities in Java and Sumatra, Indonesia. The population is the control variable of this study. The analytical method used is panel data regression. The results show that Wagner's law and Keynes' hypothesis apply both in new districts/cities and in existing districts/cities. In existing districts/cities, the population has a significant positive impact on the real GRDP and government expenditure. However, in new districts/cities, the population has a significant positive impact only on the real GRDP. The implication is that the governments are supposed to allocate their expenditure better so that the economy develops better. The economy must be supported and maintained with appropriate regulations so that the business climate continues to be conducive. A synergy between the government and the business world is needed to support each other.