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Tax-and-spend, spend-and-tax, or fiscal synchronization: new evidence for ten countries

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  • Tsangyao Chang
  • Wen Rong Liu
  • Steven Caudill

Abstract

Cointegration and vector autoregression are used to test the 'Tax-and-Spend', 'Spend-and-Tax', and 'Fiscal Synchronization' for ten countries using annual time-series data over the period 1951 to 1996. Three of them are part of the newly industrialized countries of Asia (South Korea, Taiwan, and Thailand) and seven are industrialized countries (Australia, Canada, Japan, New Zealand, South Africa, UK, and the USA). This paper includes GDP as a control variable into the model like Baghestani and Mcnown (1994), Ross and Payne (1998), and Koren and Stiassny (1998). The Johansen (1988) and Johansen and Juselius (1990) cointegration test results indicate that these three variables are cointegrated with two cointegrating vectors for South Korea, one vector for Australia, Canada, South Africa, Taiwan, UK, and the USA, and no vector for Japan, New Zealand, and Thailand. The results from Granger causality tests suggest unidirectional causality running from revenues to spending, supporting the 'Tax-and-Spend' hypothesis, for Japan, South Korea, Taiwan, UK, and the USA. The opposite relationship, supporting the 'Spend-andTax' hypothesis, holds only for Australia and South Africa. In the case of Canada, this study finds a feedback existing between revenues and spending, supporting the 'Fiscal Synchronization' hypothesis. For New Zealand and Thailand, these results support none of the hypotheses.

Suggested Citation

  • Tsangyao Chang & Wen Rong Liu & Steven Caudill, 2002. "Tax-and-spend, spend-and-tax, or fiscal synchronization: new evidence for ten countries," Applied Economics, Taylor & Francis Journals, vol. 34(12), pages 1553-1561.
  • Handle: RePEc:taf:applec:v:34:y:2002:i:12:p:1553-1561
    DOI: 10.1080/00036840110103265
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    References listed on IDEAS

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    1. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1.
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    1. repec:kap:iaecre:v:15:y:2009:i:2:p:143-155 is not listed on IDEAS
    2. repec:sos:sosjrn:180202 is not listed on IDEAS
    3. repec:kap:empiri:v:45:y:2018:i:3:d:10.1007_s10663-017-9375-5 is not listed on IDEAS
    4. Edward Ghartey, 2010. "Cointegration and Causal Relationship between Taxes and Spending for Kenya, Nigeria and South Africa," International Economic Journal, Taylor & Francis Journals, vol. 24(2), pages 267-282.
    5. Saunoris, James W. & Payne, James E., 2010. "Tax more or spend less? Asymmetries in the UK revenue-expenditure nexus," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 478-487, July.
    6. 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].
    7. Luis Gil-Alana, 2009. "Government Expenditures and Revenues: Evidence of Fractional Cointegration in an Asymmetric Modeling," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(2), pages 143-155, May.
    8. 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.
    9. 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.
    10. António Afonso & Christophe Rault, 2009. "Spend-and-tax: a panel data investigation for the EU," Economics Bulletin, AccessEcon, vol. 29(4), pages 2542-2548.
    11. Athanasios Athanasenas & Constantinos Katrakilidis & Emmanouil Trachanas, 2014. "Government spending and revenues in the Greek economy: evidence from nonlinear cointegration," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(2), pages 365-376, May.
    12. Magazzino, Cosimo, 2010. "Public expenditure and revenue in Italy, 1862-1993," MPRA Paper 27308, University Library of Munich, Germany.
    13. repec:rss:jnljms:v6i10p4 is not listed on IDEAS
    14. Tamim Bayoumi & Fernando M. Gonçalves, 2007. "Government for the People; On the Determinants of the Size of U.S. Government," IMF Working Papers 07/289, International Monetary Fund.
    15. Ant??nio Afonso & Christophe Rault, 2009. "Bootstrap panel Granger-causality between government spending and revenue in the EU," William Davidson Institute Working Papers Series wp944, William Davidson Institute at the University of Michigan.
    16. Phiri, Andrew, 2016. "Asymmetries in the revenue-expenditure nexus: New evidence from South Africa," MPRA Paper 75224, University Library of Munich, Germany.
    17. Kausik Chaudhuri & Bodhisattva Sengupta, 2009. "Revenue-Expenditure Nexus for Southern States: Some Policy Oriented Econometric Observations," Working Papers 2009-048, Madras School of Economics,Chennai,India.
    18. George A. Vamvoukas, 2011. "Panel Data Modeling and the Tax-Spend Controversy in the Euro Zone," Post-Print hal-00716629, HAL.
    19. repec:aoj:ajeaer:2017:p:91-98 is not listed on IDEAS
    20. 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.
    21. Mihai Mutascu, 2015. "Government revenues and expenditures in the EU ex-communist countries: a bootstrap panel Granger causality approach," Working Papers halshs-01109233, HAL.
    22. Paresh Kumar Narayan & Seema Narayan, 2006. "Government revenue and government expenditure nexus: evidence from developing countries," Applied Economics, Taylor & Francis Journals, vol. 38(3), pages 285-291.
    23. GHARTEY, Edward E., 2010. "Government Expenditures And Revenues Causation: Some Caribbean Empirical Evidence," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
    24. Lusine Lusinyan & John Thornton, 2010. "The Intertemporal Relation Between Government Revenue and Expenditure in the United Kingdom, 1750-2004," Working Papers 10007, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    25. 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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