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

  • Aka, F.B.
  • Decaluwé, 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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File URL: http://www.ecn.ulaval.ca/w3/recherche/cahiers/1999/9911.pdf
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Paper provided by Université Laval - Département d'économique in its series Cahiers de recherche with number 9911.

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Date of creation: 1999
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Handle: RePEc:lvl:laeccr:9911
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  18. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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