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Government revenue and government expenditure nexus: evidence from developing countries

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  • Paresh Kumar Narayan
  • Seema Narayan

Abstract

The relationship between government revenue and government expenditure has attracted a lot of interest given its policy relevance, particularly with respect to budget deficits. The goal of this paper is to investigate evidence for causality between government revenue and government expenditure within a multivariate framework by modelling them together with gross domestic product for 12 developing countries. Our application of the Toda and Yamamoto (1995) test for Granger causality reveals support for the tax-and-spend hypothesis for Mauritius, El Salvador, Haiti, Chile and Venezuela. For Haiti, there is evidence for the spend-and-tax hypothesis, while for Peru, South Africa, Guatemala, Uruguay and Ecuador there is evidence of neutrality.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 3 ()
Pages: 285-291

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Handle: RePEc:taf:applec:v:38:y:2006:i:3:p:285-291

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  1. 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 & Francis Journals, vol. 34(12), pages 1553-1561.
  2. Qing Wang & Ugo Fasano-Filho, 2002. "Testing the Relationship Between Government Spending and Revenue," IMF Working Papers 02/201, International Monetary Fund.
  3. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  4. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1, octubre-d.
  5. Constantinos Katrakilidis, 1997. "Spending and revenues in Greece: new evidence from error correction modelling," Applied Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 387-391.
  6. Christos Kollias & Stelios Makrydakis, 2000. "Tax and spend or spend and tax? Empirical evidence from Greece, Spain, Portugal and Ireland," Applied Economics, Taylor & Francis Journals, vol. 32(5), pages 533-546.
  7. Narayan, Paresh Kumar, 2005. "The government revenue and government expenditure nexus: empirical evidence from nine Asian countries," Journal of Asian Economics, Elsevier, vol. 15(6), pages 1203-1216, January.
  8. Abdulnasser Hatemi-J & Ghazi Shukur, 1999. "The causal nexus of government spending and revenue in Finland: a bootstrap approach," Applied Economics Letters, Taylor & Francis Journals, vol. 6(10), pages 641-644.
  9. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
  10. Hondroyiannis, George & Papapetrou, Evangelia, 1996. " An Examination of the Causal Relationship between Government Spending and Revenue: A Cointegration Analysis," Public Choice, Springer, vol. 89(3-4), pages 363-74, December.
  11. Baffes, John & Shah, Anwar, 1994. "Causality and comovement between taxes and expenditures: Historical evidence from Argentina, Brazil, and Mexico," Journal of Development Economics, Elsevier, vol. 44(2), pages 311-331, August.
  12. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  13. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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Cited by:
  1. Eita, Joel Hinaunye & Mbazima, Daisy, 2008. "The Causal Relationship Between Government Revenue and Expenditure in Namibia," MPRA Paper 9154, University Library of Munich, Germany.
  2. Fazal Husain & Muhammad Ali Qasim & Mahmood Khalid, 2010. "The Relationship between Federal Government Revenues and Expenditures in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 641–649.
  3. G A Vamvoukas, 2011. "The Tax-Spend Debate with an Application to the EU," Economic Issues Journal Articles, Economic Issues, vol. 16(1), pages 65-88, March.
  4. HYE, Qazi Muhammad Adnan & M Anwar, Jalil, 2010. "Revenue and Expenditure Nexus: A Case Study of Romania," MPRA Paper 32132, University Library of Munich, Germany.
  5. Athanasios Athanasenas & Constantinos Katrakilidis & Emmanouil Trachanas, 2014. "Government spending and revenues in the Greek economy: evidence from nonlinear cointegration," Empirica, Springer, vol. 41(2), pages 365-376, May.
  6. Hasan, Syed Akif & Subhani, Muhammad Imtiaz & Osman, Ms. Amber, 2012. "Fiscal Deficit cannot be reduced by increasing Taxes (A point to ponder from Pakistan)," MPRA Paper 35681, University Library of Munich, Germany.
  7. Hasan, Syed Akif & Subhani, Muhammad Imtiaz & Osman, Ms. Amber, 2011. "An investigation of granger causality between tax revenues and government expenditures," MPRA Paper 35686, University Library of Munich, Germany.
  8. Chin-Hong Puah Author_Email: chpuah@feb.unimas.my & Evan Lau & Hui-Fern Teo, 2011. "Testing Budget Sustainability In Sarawak State," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-221, Conference Master Resources.
  9. GHARTEY, Edward E., 2010. "Government Expenditures And Revenues Causation: Some Caribbean Empirical Evidence," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).

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