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Panel Data Modeling and the Tax-Spend Controversy in the Euro Zone

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  • George A. Vamvoukas

    (Business Administration - AUEB - Athens University of Economics and Business)

Abstract

This paper attempts to differentiate between the debatable tax and spend, spend and tax, fiscal synchronization and institutional separation hypotheses in order to explore empirically the interplay between public expenditures and public revenues in EMU member states. For this purpose, panel data models are derived to test the validity of the four hypotheses in EMU countries. A notable characteristic of the present paper is that the four hypotheses are tested by dividing EMU countries into various subgroups and using disaggregated data for government expenditures and revenues. Seeking for the robustness of the empirical evidence, the panel data methods of GTSLS and GMM are accordingly applied to identify the relationship between public outlays and taxation receipts. GTSLS and GMM results strongly support the fiscal synchronization hypothesis implying that budget decision-making is significantly influenced by both government expenditures and revenues components.

Suggested Citation

  • George A. Vamvoukas, 2011. "Panel Data Modeling and the Tax-Spend Controversy in the Euro Zone," Post-Print hal-00716629, HAL.
    • Handle: RePEc:hal:journl:hal-00716629
    DOI: 10.1080/00036846.2011.587777
    Note: View the original document on HAL open archive server: https://hal.science/hal-00716629
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