This paper applies Granger causality tests to Swiss Cantonal Revenue and Expenditure in levels. It is the first study for Switzerland at the individual regional level and on the basis of vector error correction models distinguishing between long-term and short-term causality. The long-term relation observed either extends from revenue to expenditure, extends from expenditure to revenue, is non-existent or mutual depending on the canton. This confirms the unsuitability of performing the analysis at the aggregate level (all cantons) and shows that policy implications on deficit control and theoretical explanations of public sector growth differ according to the causality observed.
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Find related papers by JEL classification: H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
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