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Causality between taxes and expenditures: Evidence from Latin American countries

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  • Benjamin Cheng

Abstract

The paper applies the techniques of cointegration and Hsiao’s version of the Granger causality method to examine the causality between taxes and expenditures for eight Latin American countries. The findings of bidirectional causality between taxes and expenditures in Chile, Panama, Brazil, and Peru indicate that taxes and expenditures are jointly determined. This study, however, detects causality running one way from taxes to expenditures in Columbia, the Dominican Republic, Honduras, and Paraguay. Taken together, this study strongly rejects the spend-and-tax hypothesis. (JEL C320, E620) Copyright Springer 1999

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  • Benjamin Cheng, 1999. "Causality between taxes and expenditures: Evidence from Latin American countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(2), pages 184-192, June.
    • Handle: RePEc:spr:jecfin:v:23:y:1999:i:2:p:184-192
    DOI: 10.1007/BF02745952
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    5. Arvin, Mak B. & Pradhan, Rudra P. & Nair, Mahendhiran S., 2021. "Are there links between institutional quality, government expenditure, tax revenue and economic growth? Evidence from low-income and lower middle-income countries," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 468-489.
    6. A. Phiri, 2019. "Asymmetries in the revenue–expenditure nexus: new evidence from South Africa," Empirical Economics, Springer, vol. 56(5), pages 1515-1547, May.
    7. Westerlund, Joakim & Mahdavi, Saeid & Firoozi, Fathali, 2011. "The tax-spending nexus: Evidence from a panel of US state-local governments," Economic Modelling, Elsevier, vol. 28(3), pages 885-890, May.
    8. Denilson Torcate Lopes & André Rebelo & Cleomar Gomes da Silva, 2008. "Arrecadar e Gastar ou Gastar e Arrecadar? Evidências para o Caso Brasileiro," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807151811030, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    9. Emre BULUT & Dilek ÇİL, 2024. "Asymmetric Causality Relationship Between Public Expenditures and Tax Revenues: Transition Economies Case," Sosyoekonomi Journal, Sosyoekonomi Society, issue 32(60).
    10. James E. Payne, 2003. "A Survey of the International Empirical Evidence on the Tax-Spend Debate," Public Finance Review, , vol. 31(3), pages 302-324, May.
    11. Legrenzi, G. & Milas, C., 2004. "Non-linear adjustments in fiscal policy," Working Papers 04/06, Department of Economics, City University London.
    12. M. Haider Hussain, 2005. "On the Causal Relationship between Government Expenditure and Tax Revenue in Pakistan," Macroeconomics 0509014, University Library of Munich, Germany.
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    15. Paul Alagidede & George Tweneboah, 2015. "On the Sustainability and Synchronization of Fiscal Policy in Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 52(2), pages 213-240, November.
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