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Budget Balance Through Spending Cuts Or Tax Adjustments?

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  • Ali F. Darrat

Abstract

This article explores the causal (lead/lag) relation between government spending and taxation in two developing countries (Lebanon and Tunisia). Both countries have suffered from large budget deficit and/or national debt problems, particularly since the early 1990s. Empirical results deduced from a battery of tests suggest that decisions to spend and tax are significantly interdependent in both countries. Moreover, the evidence is consistent with the notion that raising taxes (working primarily through aroused public awareness) provokes spending cuts. Thus, higher taxes seem an optimal resolution to the deficit predicament in both countries. Copyright 2002 Western Economic Association International.

Suggested Citation

  • Ali F. Darrat, 2002. "Budget Balance Through Spending Cuts Or Tax Adjustments?," Contemporary Economic Policy, Western Economic Association International, vol. 20(3), pages 221-233, July.
  • Handle: RePEc:bla:coecpo:v:20:y:2002:i:3:p:221-233
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    References listed on IDEAS

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    5. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
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    11. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
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    Cited by:

    1. repec:ksp:journ1:v:4:y:2017:i:1:p:53-70 is not listed on IDEAS
    2. Yaya Keho, 2010. "Spending Cuts or Tax Adjustments: How Can UEMOA Countries Control Their Budget Deficits?," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 9(3), pages 233-252, December.

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