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An empirical investigation of the relationship between government revenue and expenditure

Author

Listed:
  • Neelesh Gounder
  • Paresh Kumar Narayan
  • Arti Prasad

Abstract

Purpose - Understanding the relationship between government revenue and government expenditure is important from a policy point of view, especially for a country like Fiji, which is suffering from persistent budget deficits. The aim of this paper is to investigate the relationship between government revenue and expenditure for Fiji. Design/methodology/approach - The Johansen test for cointegration and Granger causality test are used to conduct the empirical analysis. Findings - The key findings are that: government revenue and government expenditure in both the aggregate and disaggregate sense are cointegrated; in the short‐run government expenditure Granger causes government revenue in an aggregate sense, departmental expenditure Granger causes aggregate revenue, and there is bidirectional causality running between government expenditure and customs duties; and in the long‐run there is evidence of fiscal synchronization, implying that expenditure decisions are not made in isolation from revenue decisions. Research limitations/implications - This fiscal synchronization has not been able curb the current account deficit in Fiji. Moreover, the confirmation of the spend‐tax attitude of the government does not bode well for the level of investments and skilled human capital in Fiji as this may perpetuate tax increases in the future. Given that the Fiji Government is currently trying to rein in the escalating level of fiscal deficit, it is an opportune time for them to engage in extensive expenditure reforms. Originality/value - The findings of this paper should allow policy makers to make informed decisions. Furthermore, the paper is different from others because apart from examining the revenue and expenditure in an aggregate sense, it also considers the different components of revenue and expenditure.

Suggested Citation

  • Neelesh Gounder & Paresh Kumar Narayan & Arti Prasad, 2007. "An empirical investigation of the relationship between government revenue and expenditure," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 34(3), pages 147-158, February.
    • Handle: RePEc:eme:ijsepp:v:34:y:2007:i:3:p:147-158
    DOI: 10.1108/03068290710726711
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    References listed on IDEAS

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    1. Hoover, Kevin D & Sheffrin, Steven M, 1992. "Causation, Spending, and Taxes: Sand in the Sandbox or Tax Collector for the Welfare State?," American Economic Review, American Economic Association, vol. 82(1), pages 225-248, March.
    2. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
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    4. Scott M. Fuess, Jr. & Jack W. Hou & Meghan Millea, 2003. "Tax or Spend, What causes What? Reconsidering Taiwan's Experience," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 2(2), pages 109-119, August.
    5. Narayan, Paresh Kumar, 2005. "The government revenue and government expenditure nexus: empirical evidence from nine Asian countries," Journal of Asian Economics, Elsevier, vol. 15(6), pages 1203-1216, January.
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    Citations

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    Cited by:

    1. Fazal Husain & Muhammad Ali Qasim & Mahmood Khalid, 2010. "The Relationship between Federal Government Revenues and Expenditures in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 641-649.
    2. Ullah, Nazim, 2016. "The relationship of government revenue and government expenditure: a case study of Malaysia," MPRA Paper 69123, University Library of Munich, Germany.
    3. Loganathan, Nanthakumar & Mori Kogid & Suriyani Muhamad & Nor Haslina Mohamad Akhir, 2011. "Fiscal Adjustment And Dynamic Economics Performance: The Case Of Malaysia," Journal of Global Business and Economics, Global Research Agency, vol. 3(1), pages 1-10, July.
    4. Nanthakumar LOGANATHAN & Suraya ISMAIL & Dalia STREIMIKIENE & Asan Ali Golam HASSAN & Edmundas Kazimieras ZAVADSKAS & Abbas MARDANI, 2017. "Tax Reform, Inflation, Financial Development And Economic Growth In Malaysia," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 152-165, December.
    5. Eita, Joel Hinaunye & Mbazima, Daisy, 2008. "The Causal Relationship Between Government Revenue and Expenditure in Namibia," MPRA Paper 9154, University Library of Munich, Germany.
    6. Hasan, Syed Akif & Subhani, Muhammad Imtiaz & Osman, Ms. Amber, 2011. "An investigation of granger causality between tax revenues and government expenditures," MPRA Paper 35686, University Library of Munich, Germany.
    7. Yousef Elyasi & Mohammad Rahimi, 2012. "The Causality between Government Revenue and Government Expenditure in Iran," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 5(1), pages 129-145, April.
    8. Fuad M.M Kreishan & Mohamed Sayed Abou Elseoud & Mohammad Selim, 2018. "Oil Revenue and State Budget Dynamic Relationship: Evidence from Bahrain," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 174-179.

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