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Spend-and-tax: a panel data investigation for the EU

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Author Info

  • António Afonso

    () (ISEG/TULisbon; UECE; European Central Bank)

  • Christophe Rault

    () (LEO, University of Orléans)

Abstract

Using bootstrap panel analysis, allowing for cross-country correlation, without the need of pre-testing for unit roots, we study the causality between government spending and revenue for the EU in the period 1960-2006. We find spend-and-tax causality for Italy, France, Spain, Greece, and Portugal, while tax-and-spend evidence is present for Germany, Belgium, Austria Finland and the UK, and for several EU New Member States. Moreover, in the run-up to EMU there was some shifting away from a spend-and-tax strategy, implying adjustments of fiscal behaviour.

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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P7.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 4 ()
Pages: 2542-2548

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Handle: RePEc:ebl:ecbull:eb-09-00300

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Keywords: panel causality; fiscal policy; EU;

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References

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  1. Christophe Rault & Antonio Alfonso, 2007. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," William Davidson Institute Working Papers Series wp893, William Davidson Institute at the University of Michigan.
  2. Payne, James E, 1998. " The Tax-Spend Debate: Time Series Evidence from State Budgets," Public Choice, Springer, vol. 95(3-4), pages 307-20, June.
  3. Konya, Laszlo, 2006. "Exports and growth: Granger causality analysis on OECD countries with a panel data approach," Economic Modelling, Elsevier, vol. 23(6), pages 978-992, December.
  4. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
  5. von Furstenberg, George M & Green, R Jeffrey & Jeong, Jin-Ho, 1986. "Tax and Spend, or Spend and Tax?," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 179-88, May.
  6. Christos Kollias & Susana-Maria Paleologou, 2006. "Fiscal policy in the European Union: Tax and spend, spend and tax, fiscal synchronisation or institutional separation?," Journal of Economic Studies, Emerald Group Publishing, vol. 33(2), pages 108-120, May.
  7. Tsangyao Chang & Wen Rong Liu & Steven Caudill, 2002. "Tax-and-spend, spend-and-tax, or fiscal synchronization: new evidence for ten countries," Applied Economics, Taylor and Francis Journals, vol. 34(12), pages 1553-1561.
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Cited by:
  1. Yu-Fu Chen & Michael Funke, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," CESifo Working Paper Series 2759, CESifo Group Munich.
  2. Saunoris, James W. & Payne, James E., 2010. "Tax more or spend less? Asymmetries in the UK revenue-expenditure nexus," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 478-487, July.

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