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Panel data modelling and the tax-spend controversy in the euro zone

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  • George A Vamvoukas

Abstract

This article attempts to differentiate between the debatable tax and spend, spend and tax, fiscal synchronization and institutional separation hypotheses in order to explore empirically the interplay between public expenditures and public revenues in the Economic and Monetary Union (EMU) member states. For this purpose, panel data models are derived to test the validity of the four hypotheses in EMU countries. A notable characteristic of this article is that the four hypotheses are tested by dividing EMU countries into various subgroups and using disaggregated data for government expenditures and revenues. Seeking for the robustness of the empirical evidence, the panel data methods of Generalized Two-Stage Least Squares (GTSLS) and Generalized Method of Moments (GMM) are accordingly applied to identify the relationship between public outlays and taxation receipts. GTSLS and GMM results strongly support the fiscal synchronization hypothesis implying that budget decision-making is significantly influenced by both government expenditures and revenues components.

Suggested Citation

  • George A Vamvoukas, 2012. "Panel data modelling and the tax-spend controversy in the euro zone," Applied Economics, Taylor & Francis Journals, vol. 44(31), pages 4073-4085, November.
    • Handle: RePEc:taf:applec:44:y:2012:i:31:p:4073-4085
    DOI: 10.1080/00036846.2011.587777
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    2. Solikin, Akhmad & Nizar, Muhammad Afdi, 2022. "Government Revenue and Government Spending Nexus: A Testing Hypothesis for Indonesia," MPRA Paper 118556, University Library of Munich, Germany.
    3. Syed Ali Raza & Syed Zaki Hassan & Arshian Sharif, 2019. "Asymmetric Relationship Between Government Revenues and Expenditures in a Developing Economy: Evidence from a Non-linear Model," Global Business Review, International Management Institute, vol. 20(5), pages 1179-1195, October.
    4. 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.
    5. Taner TURAN & Mesut KARAKAŞ, 2018. "The Relationship between Government Spending and Revenue: Nonlinear Bounds Testing Approach (NARDL)," Sosyoekonomi Journal, Sosyoekonomi Society.
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    7. Ntokozo Patrick Nzimande & Harold Ngalawa, 2022. "Tax-Spend or Spend-Tax? The Case of Southern Africa," Economies, MDPI, vol. 10(4), pages 1-10, April.
    8. Dervis Kirikkaleli & Bugra Ozbeser, 2023. "Government Expenditures and Tax Revenues in the United States of America," SAGE Open, , vol. 13(1), pages 21582440231, March.
    9. Polemis, Michael L. & Fotis, Panagiotis N., 2013. "Do gasoline prices respond asymmetrically in the euro zone area? Evidence from cointegrated panel data analysis," Energy Policy, Elsevier, vol. 56(C), pages 425-433.
    10. Fabricio Linhares & Glauber Nojosa, 2020. "Changes in the tax-spend nexus: Evidence from selected European countries," Economics Bulletin, AccessEcon, vol. 40(4), pages 3077-3087.
    11. Thomas Brand, 2017. "Vitesse et composition des ajustements budgétaires en équilibre général : une analyse appliquée à la zone euro," Revue économique, Presses de Sciences-Po, vol. 68(HS1), pages 159-182.
    12. Mesut Karakas & Taner Turan, 2019. "The Government Spending-Revenue Nexus in CEE Countries: Some Evidence for Asymmetric Effects," Prague Economic Papers, Prague University of Economics and Business, vol. 2019(6), pages 633-647.

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