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The Relationship Between Government Revenues And Expenditures: Bootstrap Panel Granger Causality Analysis On European Countries

Author

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  • Süleyman Bolat

    (Faculty of Economics and Administrative Sciences, Aksaray University, Aksaray, Turkey)

Abstract

The objective of this paper is to test the relationship between government expenditure and revenue nexus in EU 10 countries during the period 1980-2013. This study uses the panel causality approach proposed by Kónya (2006) that take into account cross section dependency and heterogeneity across countries. The first empirical results point to the "tax-spend hypothesis" for Germany, Italy, and Netherlands. We found government expenditure Granger causes government revenue for France and Portugal, consistent with the "spend-tax hypothesis". But, there is no relationship between these fiscal variables for Austria, Belgium, Denmark, Finland, and UK, pointing support the "institutional separation hypothesis" or "fiscal independence hypothesis". After determining the direction of the causality in a country, government must manage the eligible fiscal policies, restore the fiscal balance and reduce the public deficits for a sustainable fiscal and economic path.

Suggested Citation

  • Süleyman Bolat, 2014. "The Relationship Between Government Revenues And Expenditures: Bootstrap Panel Granger Causality Analysis On European Countries," Economic Research Guardian, Weissberg Publishing, vol. 4(2), pages 58-73, December.
    • Handle: RePEc:wei:journl:v:4:y:2014:i:2:p:58-73
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    Citations

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    Cited by:

    1. A. Phiri, 2019. "Asymmetries in the revenue–expenditure nexus: new evidence from South Africa," Empirical Economics, Springer, vol. 56(5), pages 1515-1547, May.
    2. Phiri, Andrew, 2018. "How sustainable are fiscal budgets in the Kingdom of Swaziland?," MPRA Paper 85149, University Library of Munich, Germany.
    3. Mihai Mutascu, 2015. "A bootstrap panel Granger causality analysis of government revenues and expenditures in the PIIGS countries," Economics Bulletin, AccessEcon, vol. 35(3), pages 2000-2004.
    4. Krasnopeeva, Natalia, 2023. "Revenues and expenditures of Russian regional budgets: Granger causality analysis," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 70, pages 5-33.
    5. Golpe, Antonio A. & Sánchez-Fuentes, A. Jesus & Vides, José Carlos, 2023. "Fiscal sustainability, monetary policy and economic growth in the Euro Area: In search of the ultimate causal path," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1026-1045.
    6. Taner TURAN & Mesut KARAKAŞ, 2018. "The Relationship between Government Spending and Revenue: Nonlinear Bounds Testing Approach (NARDL)," Sosyoekonomi Journal, Sosyoekonomi Society.
    7. Mihai Mutascu, 2015. "Government revenues and expenditures in the EU ex-communist countries: a bootstrap panel Granger causality approach," Working Papers halshs-01109233, HAL.

    More about this item

    Keywords

    Government revenue; Expenditure; Cross section dependence; Panel causality test;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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