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

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  • Aka, F.B.
  • Decaluwé, B.

Abstract

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.

Suggested Citation

  • Aka, F.B. & Decaluwé, B., 1999. "Causality and Comovement between Tax Rate and Budget Deficits: Further Evidence from Developing Countries," Cahiers de recherche 9911, Université Laval - Département d'économique.
  • Handle: RePEc:lvl:laeccr:9911
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    File URL: http://www.ecn.ulaval.ca/w3/recherche/cahiers/1999/9911.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax Rate; Budget Deficit; Cointegration; Causality; Bootstrap;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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