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A causality relationship between tax revenue and government expenditure in Indonesia

Author

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  • Jaka Sriyana

    (Faculty of Economics Universitas Islam Indonesia)

Abstract

This paper attempts to model the relationship between tax revenue and government expenditure for Indonesia over the period 1970-2007. The empirical analysis employs tests of cointegration and Vector Error Correction Model (VECM). The empirical evidence suggests that there is a long run relationship between tax and government expenditure, but in the short term, the model explains unidirectional causality relationship, namely from tax revenue to govern ment expenditure This finding indicates that the budget deficit increase continuously, which threaten the fiscal sustainability in the long term. It suggests that the government should organize a better management on public finance policies to support the tax-spend fiscal policy.

Suggested Citation

  • Jaka Sriyana, 2009. "A causality relationship between tax revenue and government expenditure in Indonesia," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 1(2), pages 93-101, April.
    • Handle: RePEc:uii:journl:v:1:y:2009:i:2:p:93-101
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    File URL: https://journal.uii.ac.id/JEP/article/download/2275/2074
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    References listed on IDEAS

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    6. von Furstenberg, George M & Green, R Jeffrey & Jeong, Jin-Ho, 1986. "Tax and Spend, or Spend and Tax?," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 179-188, May.
    7. International Monetary Fund, 1989. "Government Expenditure and Economic Growth: An Empirical Investigation," IMF Working Papers 1989/045, International Monetary Fund.
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Temel Gurdal & Mucahit Aydin & Veysel Inal, 2021. "The relationship between tax revenue, government expenditure, and economic growth in G7 countries: new evidence from time and frequency domain approaches," Economic Change and Restructuring, Springer, vol. 54(2), pages 305-337, May.
    2. Ullah, Nazim, 2016. "The relationship of government revenue and government expenditure: a case study of Malaysia," MPRA Paper 69123, University Library of Munich, Germany.

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    More about this item

    Keywords

    tax; government; causality; expenditure; cointegration.;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H59 - Public Economics - - National Government Expenditures and Related Policies - - - Other

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