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Government Expenditure and Tax Revenue, Causality and Cointegration: The Experience of Pakistan (1972–2007)

Author

Listed:
  • Zinaz Aisha

    (Department of Economics, Sardar Bahadur Khan Women’s University, Quetta, Balochistan)

  • Samina Khatoon

    (Applied Economics Research Centre, University of Karachi, Karachi)

Abstract

This paper establishes empirically the causal relationship and long run relationship between government expenditures and government revenues for the case of Pakistan from 1972 to 2007. Fiscal policy, a short run issue, but that can have testing macro economic consequences. Fiscal policy is viewed as an instrument to mitigate short run fluctuations. In this paper we examine tax/spend or spend/tax hypothesis. For this purpose, bi-directional Granger causality will be applied for instance flow from government expenditure to revenue or revenue to government expenditure. This issue has been concerned with intretemporal relationship between revenue and expenditure, so to check long run relationship Engel Granger cointegration will be used. For checking data stationary, non stationary unit root, and ADF/DF approaches give the proof for this hypothesis. The results show the presence of co-integration between government expenditure and tax revenue variables implying evidence of a stable long-run relationship between them. The Granger Causality test suggest the unidirectional causality flow from government expenditure to tax revenue.

Suggested Citation

  • Zinaz Aisha & Samina Khatoon, 2009. "Government Expenditure and Tax Revenue, Causality and Cointegration: The Experience of Pakistan (1972–2007)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 48(4), pages 951-959.
    • Handle: RePEc:pid:journl:v:48:y:2009:i:4:p:951-959
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    Cited by:

    1. Tran, My Thi Ha, 2021. "Public Sector Management And Corruption In Asean Plus Six," OSF Preprints stxw4, Center for Open Science.
    2. Ali, Wajid & Munir, Kashif, 2016. "Testing Wagner versus Keynesian Hypothesis for Pakistan: The Role of Aggregate and Disaggregate Expenditure," MPRA Paper 74570, University Library of Munich, Germany.

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