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The Causality between Government Revenue and Government Expenditure in Iran

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Author Info

  • Yousef Elyasi

    ()
    (Young Researchers Club, Mahabad Branch, Islamic Azad University, Mahabad, Iran)

  • Mohammad Rahimi

    ()
    (Faculty of Economics and Social Science, Bu-Ali Sina University, Hamedan, Iran)

Abstract

The causal relationship between government revenue and government expenditure is an important subject in public economics especially to the control of budget deficit. The purpose of this study is to investigate the relationship between government revenue and government expenditure in Iran by applying the bounds testing approach to cointegration. The results of the causality test show that there is a bidirectional causal relationship between government expenditure and revenues in both long run and short run. Therefore, the results of this paper are consistent with fiscal synchronization hypothesis. The policy implication of results suggests that because of existing interdependence relation between government expenditure and revenue, the government makes its expenditures and revenues decision simultaneously. Under this hypothesis, the fiscal authorities of Iran should try to increase revenues and decrease expenditure simultaneously to control the budget deficits.

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Bibliographic Info

Article provided by Technological Educational Institute (TEI) of Kavala, Greece in its journal International Journal of Economic Sciences and Applied Research (IJESAR).

Volume (Year): 5 (2012)
Issue (Month): 1 (April)
Pages: 129-145

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Handle: RePEc:tei:journl:v:5:y:2012:i:1:p:129-145

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Related research

Keywords: Government revenue/expenditure; Bounds testing approach; Granger Causality; ARDL;

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  1. Odhiambo, Nicholas M., 2010. "Energy consumption, prices and economic growth in three SSA countries: A comparative study," Energy Policy, Elsevier, vol. 38(5), pages 2463-2469, May.
  2. Tsangyao Chang & Gengnan Chiang, 2009. "Revisiting the Government Revenue-Expenditure Nexus: Evidence from 15 OECD Countries Based on the Panel Data Approach," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(2), pages 165-172, June.
  3. Kausik Chaudhuri & Bodhisattva Sengupta, 2009. "Revenue-Expenditure Nexus For Southern States : Some Policy Oriented Econometric Observations," Governance Working Papers 22937, East Asian Bureau of Economic Research.
  4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
  5. António Afonso & Cristophe Rault, 2008. "Bootstrap Panel Granger-Causality Between Government Spending and Revenue," Working Papers Department of Economics 2008/39, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  6. Neelesh Gounder & Paresh Kumar Narayan & Arti Prasad, 2007. "An empirical investigation of the relationship between government revenue and expenditure: The case of the Fiji Islands," International Journal of Social Economics, Emerald Group Publishing, vol. 34(3), pages 147-158, March.
  7. 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.
  8. 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.
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