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A Note on Testing ¡°Tax-and-Spend, Spend-and-Tax or Fiscal Synchronization¡±: The Case of China

  • Tsangyao Chang

    (Department and Graduate Institute of Economics, Feng Chia University)

  • Yuan-Hong Ho

    ()

    (Department and Graduate Institute of Public Finance, Feng Chia University)

The hypothesis of tax-and-spend, spend-and-tax, or fiscal synchronization was tested using annual time series data for China over the period 1977 to 1999. We include GDP as a control variable into the model like Baghestani and Mcnown (1994), Koren and Stiassny (1998), and Chang et al. (2002). The results from Granger causality test based on the corresponding multivariate error-correction models (MVECM) suggest feedback between government revenues and government expenditures, supporting the fiscal synchronization hypothesis for China.

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Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

Volume (Year): 27 (2002)
Issue (Month): 1 (June)
Pages: 151-160

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Handle: RePEc:jed:journl:v:27:y:2002:i:1:p:151-160
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  1. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  2. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  3. Thornton, Daniel L & Batten, Dallas S, 1985. "Lag-Length Selection and Tests of Granger Causality between Money and Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 164-78, May.
  4. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
  5. Baffes, John & Shah, Anwar, 1994. "Causality and comovement between taxes and expenditures: Historical evidence from Argentina, Brazil, and Mexico," Journal of Development Economics, Elsevier, vol. 44(2), pages 311-331, August.
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