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The Relationship between Tax Revenues and Government Expenditures in European Union and Non-European Union OECD Countries

Author

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  • Oluwole Owoye

    (Western Connecticut State University, Danbury, CT, USA, Owoyeo@wcsu.edu)

  • Olugbenga A. Onafowora

    (Susquehanna University, Selinsgrove, PA, USA)

Abstract

This article examines the causal relationship between tax revenues and government expenditures in twenty-two OECD countries, eleven European Union (EU) member states, and eleven non-EU. We use the Autorgressive Distributed Lag (ARDL) bounds test and the Toda-Yamamoto Granger noncausality approach to test for causality. The results show that the long-run and short-run causal patterns differ across these groups within the Organisation for Economic Co-operation and Development (OECD). For the long-run causal patterns, we find evidence to confirm the tax-and-spend hypothesis in eight of the twenty-two countries; but the evidence is more prevalent within the EU countries, where tax burdens are much higher, than in the non-EU OECD countries. In addition, the long-run causality results also confirm the institutional separation hypothesis in twelve countries, with two-thirds coming from the non-EU OECD countries. While we have no evidence to support the fiscal synchronization hypothesis in the long run, the short-run results show evidence of fiscal synchronization in five out of twenty-two countries.

Suggested Citation

  • Oluwole Owoye & Olugbenga A. Onafowora, 2011. "The Relationship between Tax Revenues and Government Expenditures in European Union and Non-European Union OECD Countries," Public Finance Review, , vol. 39(3), pages 429-461, May.
  • Handle: RePEc:sae:pubfin:v:39:y:2011:i:3:p:429-461
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    Cited by:

    1. Trachanas, Emmanouil & Katrakilidis, Constantinos, 2013. "Fiscal deficits under financial pressure and insolvency: Evidence for Italy, Greece and Spain," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 730-749.
    2. Kollias, Christos & Papadamou, Stephanos & Psarianos, Iacovos, 2014. "Fiscal imbalances and asymmetric adjustment under Labour and Conservative governments in the UK," Research in Economics, Elsevier, vol. 68(3), pages 208-213.

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