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Have Taxes Led Government Expenditures? The United States as a Test Case

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  • Von Furstenberg, George M.
  • Green, R. Jeffery
  • Jeong, Jin-Ho

Abstract

This paper explores intertemporal relations between innovations in government receipts and expenditures, by type and in total, at federal and state-local levels in the United States over the period 1955–82. A structural model is specified with tax and spending components as endogenous variables. After estimation with full information maximum likelihood techniques, residuals derived from the reduced form equations are used in causality tests. These tests show that where there is an indication of causality, spending tends to lead taxes. The lesson learned from past data thus appears to be that changing aggregate tax rates does not cause spending to change. Tax initiatives provide little leverage if changes in the growth of government are intended.

Suggested Citation

  • Von Furstenberg, George M. & Green, R. Jeffery & Jeong, Jin-Ho, 1985. "Have Taxes Led Government Expenditures? The United States as a Test Case," Journal of Public Policy, Cambridge University Press, vol. 5(3), pages 321-348, August.
    • Handle: RePEc:cup:jnlpup:v:5:y:1985:i:03:p:321-348_00
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    Cited by:

    1. Bradley T. Ewing & James E. Payne & Mark A. Thompson & Omar M. Al‐Zoubi, 2006. "Government Expenditures and Revenues: Evidence from Asymmetric Modeling," Southern Economic Journal, John Wiley & Sons, vol. 73(1), pages 190-200, July.
    2. Cusack, Thomas R., 1987. "Public expenditure decision making: A comparative analysis," Discussion Papers, various Research Units FGG dp 87-1, WZB Berlin Social Science Center.
    3. Athanasios Athanasenas & Constantinos Katrakilidis & Emmanouil Trachanas, 2014. "Government spending and revenues in the Greek economy: evidence from nonlinear cointegration," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(2), pages 365-376, May.
    4. Baffes, John & Shah, Anwar, 1990. "Taxing choices in deficit reduction," Policy Research Working Paper Series 556, The World Bank.
    5. Sobhee, S. K., 2004. "The Causality between Taxes and Public Expenditure in Mauritius,1970-1999: A VECM Approach," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 1(3), pages 115-130.
    6. Stöhlker, Daniel & Neumeier, Florian & Fuest, Clemens, 2018. "Tax Cuts Starve the Beast! Evidence from Germany," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181592, Verein für Socialpolitik / German Economic Association.
    7. Samad, Esma & Masih, Mansur, 2018. "Effects of fiscal components on economic growth: evidence from Malaysia," MPRA Paper 110224, University Library of Munich, Germany.
    8. Ihori, Toshihiro & Doi, Takero & Kondo, Hiroki, 2001. "Japanese fiscal reform: fiscal reconstruction and fiscal policy," Japan and the World Economy, Elsevier, vol. 13(4), pages 351-370, December.
    9. Krasnopeeva, Natalia, 2023. "Revenues and expenditures of Russian regional budgets: Granger causality analysis," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 70, pages 5-33.
    10. Matthew Zapf & James Payne, 2009. "Asymmetric modelling of the revenue-expenditure nexus: evidence from aggregate state and local government in the US," Applied Economics Letters, Taylor & Francis Journals, vol. 16(9), pages 871-876.

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