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Testing the Relationship Between Government Spending and Revenue

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  • Qing Wang
  • Ugo Fasano-Filho
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    Abstract

    The paper examines the direction of causality between total government expenditure and revenue in oil-dependent GCC countries by utilizing a cointegration and error-correction modeling framework, and by calculating a variance decomposition analysis. In addition, it presents impulse responses to shed light on the dynamic relation of expenditure to a revenue shock. The results confirm expectations that government spending follows oil revenue, suggesting a pro-cyclical expenditure policy to variations in oil revenue. To make budget expenditure less driven by revenue availability, the authorities could resort to a medium-term expenditure framework, so that expenditures can be planned and insulated from volatile short-term revenue availability.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/201.

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    Length: 27
    Date of creation: 01 Nov 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/201

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    Related research

    Keywords: Government expenditures; Revenues; expenditure; government expenditure; expenditures; government revenue; central government fiscal; fiscal balance; fiscal indicators; fiscal policy; expenditure growth; government spending; capital expenditure; expenditure policy; expenditure level; fiscal deficits; expenditure framework; medium-term expenditure; medium-term expenditure framework; public spending; fiscal adjustment; budget expenditure; expenditure decisions; fiscal accounts; public expenditure; total expenditure; fiscal rules; fiscal imbalances; fiscal incentives; public expenditure decisions; fiscal deficit; fiscal sustainability; budget constraint; fiscal imbalance; fiscal policies; fiscal surpluses; composition of expenditure;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
    2. 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.
    3. James Payne, 1997. "The tax-spend debate: the case of Canada," Applied Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 381-386.
    4. 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.
    5. Ugo Fasano-Filho, 2000. "Review of the Experience with Oil Stabilization and Savings Funds in Selected Countries," IMF Working Papers 00/112, International Monetary Fund.
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    Citations

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    Cited by:
    1. Paulo A. Medas & Daria Zakharova, 2009. "A Primer on Fiscal Analysis in Oil-Producing Countries," IMF Working Papers 09/56, International Monetary Fund.
    2. Alessandro Cologni & Matteo Manera, 2011. "Exogenous Oil Shocks, Fiscal Policy and Sector Reallocations in Oil Producing Countries," Working Papers 2011.55, Fondazione Eni Enrico Mattei.
    3. Joseph Ntamatungiro, 2004. "Fiscal Sustainability in Heavily Indebted Countries Dependent on Nonrenewable Resources: The Case of Gabon," IMF Working Papers 04/30, International Monetary Fund.
    4. Eita, Joel Hinaunye & Mbazima, Daisy, 2008. "The Causal Relationship Between Government Revenue and Expenditure in Namibia," MPRA Paper 9154, University Library of Munich, Germany.
    5. 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.
    6. El Anshasy, Amany A. & Bradley, Michael D., 2012. "Oil prices and the fiscal policy response in oil-exporting countries," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 605-620.
    7. 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.
    8. Paresh Kumar Narayan & Seema Narayan, 2006. "Government revenue and government expenditure nexus: evidence from developing countries," Applied Economics, Taylor & Francis Journals, vol. 38(3), pages 285-291.
    9. Bhaskara Rao & Maheshwar Rao, 2005. "Determinants Of Growth Rate: Some Methodological Issues With Data From Fiji," Macroeconomics 0509003, EconWPA.

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