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Government revenue and government expenditure nexus: evidence from developing countries

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  • Paresh Kumar Narayan
  • Seema Narayan

Abstract

The relationship between government revenue and government expenditure has attracted a lot of interest given its policy relevance, particularly with respect to budget deficits. The goal of this paper is to investigate evidence for causality between government revenue and government expenditure within a multivariate framework by modelling them together with gross domestic product for 12 developing countries. Our application of the Toda and Yamamoto (1995) test for Granger causality reveals support for the tax-and-spend hypothesis for Mauritius, El Salvador, Haiti, Chile and Venezuela. For Haiti, there is evidence for the spend-and-tax hypothesis, while for Peru, South Africa, Guatemala, Uruguay and Ecuador there is evidence of neutrality.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:applec:v:38:y:2006:i:3:p:285-291
    DOI: 10.1080/00036840500369209
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    References listed on IDEAS

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    Cited by:

    1. HYE, Qazi Muhammad Adnan & M Anwar, Jalil, 2010. "Revenue and Expenditure Nexus: A Case Study of Romania," MPRA Paper 32132, University Library of Munich, Germany.
    2. Kabbashi M. Suliman, 2012. "Understanding and Avoiding the Oil Curse in Sudan," Working Papers 735, Economic Research Forum, revised 2012.
    3. Dizaji, Sajjad Faraji, 2014. "The effects of oil shocks on government expenditures and government revenues nexus (with an application to Iran's sanctions)," Economic Modelling, Elsevier, vol. 40(C), pages 299-313.
    4. 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.
    5. repec:bla:sajeco:v:84:y:2016:i:4:p:520-537 is not listed on IDEAS
    6. Adel Shakeeb MOHSEN, 2016. "Effects of oil returns and external debt on the government investment: A case study of Syria," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(606), S), pages 255-262, Spring.
    7. 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.
    8. Hasan, Syed Akif & Subhani, Muhammad Imtiaz & Osman, Ms. Amber, 2012. "Fiscal Deficit cannot be reduced by increasing Taxes (A point to ponder from Pakistan)," MPRA Paper 35681, University Library of Munich, Germany.
    9. Helene Ehrhart, 2012. "Assessing the relationship between democracy and domestic taxes in developing countries," Economics Bulletin, AccessEcon, vol. 32(1), pages 551-566.
    10. Phiri, Andrew, 2016. "Asymmetries in the revenue-expenditure nexus: New evidence from South Africa," MPRA Paper 75224, University Library of Munich, Germany.
    11. Eita, Joel Hinaunye & Mbazima, Daisy, 2008. "The Causal Relationship Between Government Revenue and Expenditure in Namibia," MPRA Paper 9154, University Library of Munich, Germany.
    12. George A. Vamvoukas, 2011. "Panel Data Modeling and the Tax-Spend Controversy in the Euro Zone," Post-Print hal-00716629, HAL.
    13. Takumah, Wisdom, 2014. "The Dynamic Causal Relationship between Government Revenue and Government Expenditure Nexus in Ghana," MPRA Paper 58579, University Library of Munich, Germany.
    14. Kavese, Kambale & Phiri, Andrew, 2018. "Are fiscal budgets sustainable in South Africa? Evidence from provincial level data?," MPRA Paper 84034, University Library of Munich, Germany.
    15. Chin-Hong Puah Author_Email: chpuah@feb.unimas.my & Evan Lau & Hui-Fern Teo, 2011. "Testing Budget Sustainability In Sarawak State," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-221, Conference Master Resources.
    16. Hasan, Syed Akif & Subhani, Muhammad Imtiaz & Osman, Ms. Amber, 2011. "An investigation of granger causality between tax revenues and government expenditures," MPRA Paper 35686, University Library of Munich, Germany.
    17. Mihai Mutascu, 2015. "Government revenues and expenditures in the EU ex-communist countries: a bootstrap panel Granger causality approach," Working Papers halshs-01109233, HAL.
    18. Obeng, Samuel, 2015. "A Causality Test of the Revenue-Expenditure Nexus in Ghana," MPRA Paper 63735, University Library of Munich, Germany, revised 25 Feb 2015.
    19. Fazal Husain & Muhammad Ali Qasim & Mahmood Khalid, 2010. "The Relationship between Federal Government Revenues and Expenditures in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 641-649.
    20. Kurniawan, Rudi, 2012. "Sustainability of Fiscal Policy and Government Revenue-Expenditure Nexus: The Experience of Indonesia," MPRA Paper 65883, University Library of Munich, Germany.
    21. 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).

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