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Causality and Comovement Between Tax Rate and Budget Deficits: Further Evidence from Developing Countries

Listed author(s):
  • Aka, F.B.
  • Decaluwe, B.

This paper examines the relationship between increasing budget deficits and tax rate for Benin, Côte d'Ivoire, Niger and Togo. This investigation is based on Johansen cointegration approach and Granger causality tests. The findings suggest firstly that these variables are not cointegrated for the countries under study, and the bootstrap simulations of the relation show more evidence for the robustness of the results to small sample size effects, and secondly that there is a bidirectional impact between tax rate and budget deficits. Given this bidirectional causality between these variables, variance decomposition and impulse responses are calculated to better understand the question of which effect is greater than the other.

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Paper provided by Laval - Recherche en Politique Economique in its series Papers with number 9911.

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Length: 17 pages
Date of creation: 1999
Handle: RePEc:fth:lavape:9911
Contact details of provider: Postal:
UNIVERSITE LAVAL, GREPE DEPARTEMENT D'ECONOMIQUE, QUEBEC G1K 7P4.

Phone: (418) 656-5122
Fax: (418) 656-2707
Web page: http://www.ecn.ulaval.ca/
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  1. Granger, C. W. J., 1988. "Causality, cointegration, and control," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 551-559.
  2. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
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  7. Thornton, Daniel L & Batten, Dallas S, 1985. "Lag-Length Selection and Tests of Granger Causality between Money and Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 164-178, May.
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  16. Blangiewicz, Maria & Charemza, Wojciech W, 1990. "Cointegration in Small Samples: Empirical Percentiles, Drifting Moments and Customized Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(3), pages 303-315, August.
  17. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
  18. Basil Dalamagas, 1998. "Endogenous growth and the dynamic Laffer curve," Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 63-75.
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  20. Daniela De Angelis & Stefano Fachin & G. Alastair Young, 1997. "Bootstrapping unit root tests," Applied Economics, Taylor & Francis Journals, vol. 29(9), pages 1155-1161.
  21. Li, Hongyi & Maddala, G. S., 1997. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 80(2), pages 297-318, October.
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