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Tax-Spend, Spend-Tax, or Fiscal Synchronization: A Panel Analysis of the Chinese Provincial Real Data

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  • Yuan-Hong Ho

    (Department of Public Finance, Feng Chia University, Taiwan)

  • Chiung-Ju Huang

    () (Department of Public Finance, Feng Chia University, Taiwan)

Abstract

In this paper we tested whether the hypothesis of tax-spend, spend-tax, or fiscal synchronization applies to the 31 Chinese provinces using cross-sectional and time series data covering 1999 to 2005. The interaction between government revenues and government expenditures is tested with the newly developed panel unit root tests and heterogeneous panel cointegration tests. The results show that both revenues and expenditures are non-stationary but have a significant long-run relationship. The results based on multivariate panel error-correction models show that there is no significant causality between revenues and expenditures in the short run. However, in the long-run, a bi-directional causality exists between revenues and expenditures, thus supporting the fiscal synchronization hypothesis for 31 Chinese provinces over this sample period.

Suggested Citation

  • Yuan-Hong Ho & Chiung-Ju Huang, 2009. "Tax-Spend, Spend-Tax, or Fiscal Synchronization: A Panel Analysis of the Chinese Provincial Real Data," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 5(2), pages 257-272, July.
  • Handle: RePEc:jec:journl:v:5:y:2009:i:2:p:257-272
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    References listed on IDEAS

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    9. Tsangyao Chang & Yuan-Hong Ho, 2002. "A Note on Testing ¡°Tax-and-Spend, Spend-and-Tax or Fiscal Synchronization¡±: The Case of China," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(1), pages 151-160, June.
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    11. Tsangyao Chang & Yuan-Hong Ho, 2002. "Tax or Spend, What Causes What: Taiwan's Experience," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(2), pages 157-165, August.
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    Citations

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    Cited by:

    1. Peter Calkins & Songsak Sriboonchitta & Aree Wiboonpongse, 2009. "Econometric Advances in the Service of Macroeconomic Prediction and Planning: An Overview," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 5(2), pages 159-166, July.
    2. G A Vamvoukas, 2011. "The Tax-Spend Debate with an Application to the EU," Economic Issues Journal Articles, Economic Issues, vol. 16(1), pages 65-88, March.
    3. Garg, Sandya & Ashima Goyal & Rupayan Pal, 2014. "Why tax effort falls short of capacity in Indian states: A Stochastic frontier approach," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-032, Indira Gandhi Institute of Development Research, Mumbai, India.
    4. Dizaji, Sajjad Faraji, 2014. "The effects of oil shocks on government expenditures and government revenues nexus (with an application to Iran's sanctions)," Economic Modelling, Elsevier, vol. 40(C), pages 299-313.

    More about this item

    Keywords

    tax-spend; spend-tax; fiscal synchronization; panel cointegration;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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