Abstract This paper investigates the association between different kinds of budgetary
expenditure and economic growth of Poland. The empirical analysis makes use of
linear and nonlinear Granger causality tests to evaluate the applicability of Wagner’s
Law and that of the contrasting Keynesian theory.We employ aggregate and disaggregate
data with the sub-categories of most important budgetary expenditure, including
health care and social security, education and science, national defence and public
security expenditure and government administration expenditure for the period Q1
2000 to Q3 2008. This causality analysis indicates that total relation between budgetary
expenditure and economic growth is consistent with Keynesian theory. The results
of our computations have important policy implications. In case of Poland the health
care expenditure was found to be as important for economic growth as expenditures
on education and science. Furthermore, in order to stimulate economic growth, Polish
government should consider reallocating some of national defence, public security
and government administration expenditure to health care, social security, education
and science expenditure