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The Short and Long Run Effects of Selected Variables on Tax Revenue - A Case Study

Author

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  • Sima Siami-Namini
  • Daniel Muhammad
  • Fahad Fahimullah

Abstract

The main objective of this article is to empirically examine the short and long-run relationship between real tax revenue and real local government expenditure as well as investigate the relationship between real sales tax revenue and real individual tax revenue and selective variables in Washington, D.C. for the period ranging from 1984-2015. The study uses the Johansen co-integration techniques as well as the bivariate and multivariate vector error correction model (VECM). The results indicate that there is a unidirectional and one-way causality running from real local government expenditure to the real DC¡¯s tax revenue in the short and long-run, but not vice versa. The finding indicates that DC¡¯s tax revenue changes local government expenditure. As a result, budget deficits can be avoided by implementing policies that stimulate DC¡¯s tax revenue. The Granger-causality test shows that DC resident employment does affect real individual tax in the short and long-run, simultaneously. The Granger-causality test shows that DC resident employment, household¡¯s population and stock of housing does affect real sales tax revenue in the short and long-run simultaneously. Furthermore, the results of the impulse response function (IRF) indicate that household¡¯s population and stock of housing are the major short-run effect on the real individual income tax and real sales tax revenue.

Suggested Citation

  • Sima Siami-Namini & Daniel Muhammad & Fahad Fahimullah, 2018. "The Short and Long Run Effects of Selected Variables on Tax Revenue - A Case Study," Applied Economics and Finance, Redfame publishing, vol. 5(5), pages 23-32, September.
    • Handle: RePEc:rfa:aefjnl:v:5:y:2018:i:5:p:23-32
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    References listed on IDEAS

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    2. Andrew T. Young, 2009. "Tax-Spend or Fiscal Illusion?," Cato Journal, Cato Journal, Cato Institute, vol. 29(3), pages 469-485, Fall.
    3. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
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    7. Sima Siami-Namini & Darren Hudson, 2019. "Inflation and income inequality in developed and developing countries," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 46(3), pages 611-632, August.
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    10. Francisco G. Carneiro & Joao R. Faria & Boubacar S. Barry, 2005. "Government Revenues And Expenditures In Guinea-Bissau: Causality And Cointegration," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 107-117, June.
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    Cited by:

    1. 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.
    2. Sima Siami-Namini, 2019. "Volatility Transmission Among Oil Price, Exchange Rate and Agricultural Commodities Prices," Applied Economics and Finance, Redfame publishing, vol. 6(4), pages 41-61, July.

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    More about this item

    Keywords

    DC¡¯s tax revenue; local government expenditure; vector error correction model (VECM);
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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