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The Relationship between Government Revenue and Government Expenditure in Iran

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  • Mohsen Mehrara
  • Abbas Ali Rezaei

Abstract

The relationship between government revenue and government expenditure has been an important topic in public economics, given its relevance for policy especially with respect to the budget deficit. Besides the theoretical arguments about this relation, vast empirical literature is also available all over the world. The purpose of this paper is to investigate the relationship between government revenue and government expenditure in IRAN by using annual data and applying the Toda-Yamamoto Granger causality test for the period of 1978 to 2011. it is an important issue for this country but scare empirical literature available on this issue for IRAN. The research uses the annual time series data which is obtained from the website of Central Bank. Data properties were analyzed to determine their stationary using unit root tests ADF and Zivot-Andrews unit root test which indicated that the series are I(1). The Toda-Yamamoto Granger causality test found unidirectional causality running from government revenue to government expenditure. So, these results consistent with the revenue-spend hypothesis. Our results support the Freidman (1978) and Buchanan-Wagner hypothesis that government revenues cause expenditure.

Suggested Citation

  • Mohsen Mehrara & Abbas Ali Rezaei, 2014. "The Relationship between Government Revenue and Government Expenditure in Iran," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(3), pages 171-182, March.
    • Handle: RePEc:hur:ijarbs:v:4:y:2014:i:3:p:171-182
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    References listed on IDEAS

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    4. Benjamin Cheng, 1999. "Causality between taxes and expenditures: Evidence from Latin American countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(2), pages 184-192, June.
    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 179-188, May.
    6. Paul R. Blackley, 1986. "Causality Between Revenues and Expenditures and the Size of the Federal Budget," Public Finance Review, , vol. 14(2), pages 139-156, April.
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    Cited by:

    1. Mohammad Ali Al Hayek, 2018. "The Relationship between Revenues Size and Actual Expenditures through the Closing Account Result of the Jordanian Government," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(2), pages 1-40, January.
    2. Raed A. M. Iriqat & Ahmad N. H. Anabtawi, 2016. "GDP and Tax Revenues-Causality Relationship in Developing Countries: Evidence from Palestine," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(4), pages 54-62, April.

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    More about this item

    Keywords

    Granger causality; government revenue; government expenditure; Toda-Yamamoto approach;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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