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Testing the Relationship between Government Spending and Revenue: Evidence from GCC Countries

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Author Info
Ugo Fasano-Filho
Qing Wang
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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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/201.

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Length: 27 pages
Date of creation: 11 Dec 2002
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Handle: RePEc:imf:imfwpa:02/201

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Related research
Keywords: Government expenditures ; Revenues ; Fiscal policy ; Cooperation Council for the Arab States of the Gulf ;

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References listed on IDEAS
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.:
  1. 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. [Downloadable!] (restricted)
  2. 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.
  3. Joulfaian, David & Mookerjee, Rajen, 1991. "Dynamics of Government Revenues and Expenditures in Industrial Economies," Applied Economics, Taylor and Francis Journals, vol. 23(12), pages 1839-44, December.
  4. 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. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  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. [Downloadable!]
  2. Bhaskara Rao & Maheshwar Rao, 2005. "Determinants Of Growth Rate: Some Methodological Issues With Data From Fiji," Macroeconomics 0509003, EconWPA. [Downloadable!]
  3. Paresh Kumar Narayan & Seema Narayan, 2006. "Government revenue and government expenditure nexus: evidence from developing countries," Applied Economics, Taylor and Francis Journals, vol. 38(3), pages 285-291, February. [Downloadable!] (restricted)
  4. 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. [Downloadable!]
  5. Daria Zakharova & Paulo A. Medas, 2009. "A Primer on Fiscal Analysis in Oil-Producing Countries," IMF Working Papers 09/56, International Monetary Fund. [Downloadable!]
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This page was last updated on 2009-12-17.

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