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Causality Between Taxes and Expenditures in the U.S.: A Multivariate Approach

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  • Benjamin S. Cheng
  • Ashagre Yigletu

Abstract

Applying Hsiao's version of the Granger causality method, this paper reexamines the causality between nominal expenditures and revenues in the United States for the 1946-96 period in a multivariate framework. Both the Engle-Granger two-step and Johansen canonical cointegration tests are performed. This study finds that taxes, spending, and GDP are cointegrated. While this study detects no evidence of causality between revenues and expenditures, it is found that income causes both revenues and expenditures in the Granger sense in the United States.

Suggested Citation

  • Benjamin S. Cheng & Ashagre Yigletu, 2000. "Causality Between Taxes and Expenditures in the U.S.: A Multivariate Approach," New York Economic Review, New York State Economics Association (NYSEA), vol. 31(1), pages 15-26.
    • Handle: RePEc:nye:nyervw:v:31:y:2000:i:1:p:15-26
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    References listed on IDEAS

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    1. Caines, P. E. & Keng, C. W. & Sethi, S. P., 1981. "Causality analysis and multivariate Autoregressive modelling with an application to supermarket sales analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 3(1), pages 267-298, November.
    2. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
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