Government revenue and government expenditure nexus: evidence from developing countries

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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.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840500369209

Affiliations: Department of Accounting, Finance and Economics, Griffith University, PMB 50, Gold Coast MC, Queensland, 9726, Australia

Publication date: February 20, 2006

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