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The Nexus between Government Expenditure and Revenue in Tanzania

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  • Khatibu Kazungu

Abstract

This study examines the long run relationship and the direction of causality between government revenue and government expenditure in Tanzania by using quarterly data spanning the period between 2000 and 2017. The study employed Augmented Dickey Fuller test, Johansen Cointegration, Unrestricted VAR model, Granger Causality test, Impulse Response Function and Variance Decomposition. In doing so, four hypotheses are subjected to empirical test, namely; tax-spend, spend-tax, fiscal synchronization, and fiscal neutrality. The results from both trace and maximum eigenvalue statistics clearly accept the null hypothesis that there is no cointegration between revenue and expenditure. Moreover, the Granger Causality test indicates that the direction of causality runs from government expenditure to government revenue, implying that government determines expenditure prior to its revenue. These results suggest that other three hypotheses are strongly rejected, corroborating spend-and tax hypothesis as postulated by Barro (1974), Peacock and Wiseman (1979) and Hondroyiannis and Papapetrou (1996).

Suggested Citation

  • Khatibu Kazungu, 2019. "The Nexus between Government Expenditure and Revenue in Tanzania," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 7(4), pages 158-170.
    • Handle: RePEc:asi:ajemod:v:7:y:2019:i:4:p:158-170:id:346
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    Citations

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    Cited by:

    1. Mwamkonko, Mussa Ally, 2021. "Can Governments Enhance Long-run Growth by Reallocating Public Expenditure? Empirical Evidence from Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 9(2), April.
    2. Ntokozo Patrick Nzimande & Harold Ngalawa, 2022. "Tax-Spend or Spend-Tax? The Case of Southern Africa," Economies, MDPI, vol. 10(4), pages 1-10, April.
    3. Temel Gurdal & Mucahit Aydin & Veysel Inal, 2021. "The relationship between tax revenue, government expenditure, and economic growth in G7 countries: new evidence from time and frequency domain approaches," Economic Change and Restructuring, Springer, vol. 54(2), pages 305-337, May.

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