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The Dynamic Causal Relationship between Government Revenue and Government Expenditure Nexus in Ghana

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  • Takumah, Wisdom

Abstract

The relationship between government revenue and government expenditure has been an important topic in public economics, given its relevance for policy especially with respect to the budget deficit. The purpose of this paper is to investigate the relationship between government revenue and government expenditure in Ghana for the period of 1986 - 2012. We include GDP as a control variable into the model. Data properties were analyzed to determine their stationarity using the DF-GLS and PP unit root tests which indicated that the series are I(1). We find a cointegration relationship between government revenue and government expenditure. The causality tests indicate that there is a bidirectional causal relationship between government expenditure and revenues in both the long and the short run hence confirming the Fiscal synchronization hypothesis. The policy implication of the results suggests that there is interdependence between government expenditure and revenues. The government makes its expenditure and revenues decision simultaneously. Under this scenario the fiscal authorities of these countries with budget deficits should raise revenues and decrease spending simultaneously in order to control their budget deficits.

Suggested Citation

  • Takumah, Wisdom, 2014. "The Dynamic Causal Relationship between Government Revenue and Government Expenditure Nexus in Ghana," MPRA Paper 58579, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58579
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    Cited by:

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    More about this item

    Keywords

    Government revenue; Government expenditure; Cointegration; Causality; Budget Deficit; Fiscal synchronization; Fiscal policy.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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