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Tax more or spend less? Asymmetries in the UK revenue-expenditure nexus

  • Saunoris, James W.
  • Payne, James E.

Unlike previous research on the causal relationship between government revenues and expenditures in the United Kingdom, this study estimates an asymmetric error correction model within a momentum threshold autoregressive framework over the period 1955-2009. The results indicate that government revenues respond to short-run changes in government expenditures as well as asymmetrically to budgetary disequilibrium. With respect to the asymmetric adjustment, the response of government revenues to a worsening budget is faster (in absolute terms) than to an improving budget. Thus, contrary to previous studies on the UK, the empirical findings lend support for the spend-tax hypothesis.

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Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 32 (2010)
Issue (Month): 4 (July)
Pages: 478-487

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Handle: RePEc:eee:jpolmo:v:32:y::i:4:p:478-487
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505735

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  6. António Afonso & Christophe Rault, 2009. "Spend-and-tax: A Panel Data Investigation for the EU," CESifo Working Paper Series 2705, CESifo Group Munich.
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  8. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
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  10. Bradley T. Ewing & James E. Payne & Mark A. Thompson & Omar M. Al-Zoubi, 2006. "Government Expenditures and Revenues: Evidence from Asymmetric Modeling," Southern Economic Journal, Southern Economic Association, vol. 73(1), pages 190–200, July.
  11. António Afonso & Christophe Rault, 2009. "Spend spend-and and-tax: a panel data investigation for the EU," Economics Bulletin, AccessEcon, vol. 29(4), pages A32.
  12. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
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