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The Revenue‐Expenditure Nexus: Historical Evidence For South Africa

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  • Lusine Lusinyan
  • John Thornton

Abstract

Results from unit root and cointegration tests suggest that, allowing for structural breaks, government revenue and expenditure in South Africa during 1895‐2005 were I(1) series and cointegrated. Results from Granger‐type causality tests suggest that a bidirectional Granger‐causal relation existed between revenue and expenditure for the full sample period and for sub‐periods up to the 1960s, consistent with the so‐called “fiscal synchronisation hypothesis”. However, in the 1960s the causal relation appears to have shifted to run from expenditure to taxation, consistent with Peacock and Wiseman's “displacement effect”. In the context of the recent fiscal consolidation literature, the South African fiscal experience would appear to be generally consistent with either revenue‐ or expenditure‐led fiscal consolidation efforts, but with the more recent evidence favoring expenditure‐led consolidations.

Suggested Citation

  • Lusine Lusinyan & John Thornton, 2007. "The Revenue‐Expenditure Nexus: Historical Evidence For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 75(3), pages 496-507, September.
    • Handle: RePEc:bla:sajeco:v:75:y:2007:i:3:p:496-507
    DOI: 10.1111/j.1813-6982.2007.00129.x
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    References listed on IDEAS

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    1. Subrata Ghatak & José R. Sánchez‐Fung, 2007. "Is Fiscal Policy Sustainable in Developing Economies?," Review of Development Economics, Wiley Blackwell, vol. 11(3), pages 518-530, August.
    2. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1.
    3. Feinstein,Charles H., 2005. "An Economic History of South Africa," Cambridge Books, Cambridge University Press, number 9780521850919, August.
    4. Junsoo Lee & Mark C. Strazicich, 2013. "Minimum LM unit root test with one structural break," Economics Bulletin, AccessEcon, vol. 33(4), pages 2483-2492.
    5. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    Cited by:

    1. A. Phiri, 2019. "Asymmetries in the revenue–expenditure nexus: new evidence from South Africa," Empirical Economics, Springer, vol. 56(5), pages 1515-1547, May.
    2. James Alm & Abel Embaye, 2010. "Explaining The Growth Of Government Spending In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 78(2), pages 152-169, June.
    3. Oyeyinka OMOSHORO-JONES, 2020. "Investigating The Government Revenue–Expenditure Nexus: Empirical Evidence For The Free State Province In A Multivariate Model," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 11(2), pages 138-156.
    4. Kavase, Kambale & Phiri, Andrew, 2018. "Are fiscal budgets sustainable in South Africa? Evidence from provincial level data," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 14(2), February.
    5. Ahmad Zubaidi Baharumshah & Aliyu Alhaji Jibrilla & Abdalla Sirag & Hamisu Sadi Ali & Ibrahim Muye Muhammad, 2016. "Public Revenue-Expenditure Nexus in South Africa: Are there Asymmetries?," South African Journal of Economics, Economic Society of South Africa, vol. 84(4), pages 520-537, December.
    6. Felix Kimtai Kiminyei, 2019. "Empirical Investigation on the Relationship among Kenyan Public Debt, Tax Revenue and Government Expenditure," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(1), pages 142-159, March.

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