The Relationship between Tax Revenues and Government Expenditures in European Union and Non-European Union OECD Countries

Abstract

This article examines the causal relationship between tax revenues and government expenditures in twenty-two OECD countries, eleven European Union (EU) member states, and eleven non-EU. We use the Autorgressive Distributed Lag (ARDL) bounds test and the Toda-Yamamoto Granger noncausality approach to test for causality. The results show that the long-run and short-run causal patterns differ across these groups within the Organisation for Economic Co-operation and Development (OECD). For the long-run causal patterns, we find evidence to confirm the tax-and-spend hypothesis in eight of the twenty-two countries; but the evidence is more prevalent within the EU countries, where tax burdens are much higher, than in the non-EU OECD countries. In addition, the long-run causality results also confirm the institutional separation hypothesis in twelve countries, with two-thirds coming from the non-EU OECD countries. While we have no evidence to support the fiscal synchronization hypothesis in the long run, the short-run results show evidence of fiscal synchronization in five out of twenty-two countries.

Empirical Analysis of the Determinants of Trade Balance in Post-liberalization Ghana

“…The major advantage of the generalized forecast error variance over the orthogonalized forecast error variance analysis is that the order of the variables is distinctively determined in the VAR system such that the order of the variables in the VAR specification does not matter. This approach has been used by various authors including, Narayan (2004), Onafowora and Owoye (2006) and Owoye and Onafowora (2011).…”

Asymmetric Relationship Between Government Revenues and Expenditures in a Developing Economy: Evidence from a Non-linear Model

“…On the other hand, many studies demonstrate the exact opposite results and provide the evidence of tax and spend hypothesis (Farzanegan, 2011;Maitra, 2011). Similarly, some empirical evidence has also been established in favour of the fiscal synchronization hypothesis (Athanasenas, Katrakilidis, & Trachanas, 2014;Vamvoukas, 2012); however, some scholars found these two fiscal components independent of each other and verify the institutional separation hypothesis (Iqbal & Malik, 2010;Owoye & Onafowora, 2010).…”

“…Furthermore, the studies explore the link of these two fiscal components at three different levels, that is, state level (Soguel & Ecabert, 2015;Westerlund, Mahdavi, & Firoozi, 2011), country level (Apergis, Payne, & Saunoris, 2012;Legrenzi & Milas, 2012;Saunoris & Payne, 2010) and economic or regional group level (Afonso & Rault, 2015;Gemmell, Kneller, & Sanz, 2013;Owoye & Onafowora, 2010). But the frequency of these kinds of studies is quite low in Asian economies, especially underdeveloped countries like Pakistan, where the deficit is pretty usual in the budgetary process and policymakers are still indecisive in defining such a mechanism which could help the country reduce budget deficit.…”

Fiscal deficits under financial pressure and insolvency: Evidence for Italy, Greece and Spain

“…With regard to the revenue-expenditure nexus, the cases of Italy and Spain have been investigated by Owoye (1995), Kollias and Makrydakis (2000), Kollias and Paleologou (2006) and Owoye and Onafowora (2011) who present evidence in favour of the tax-and-spend hypothesis while Bella and Quinteri (1995), Koren and Stiassny (1998) and Afonso and Rault (2009) support the spend-and-tax approach. As regards the Greek case, most empirical work supports the spendand-tax hypothesis (Joulfaian and Mookerjee, 1991;Provopoulos and Zambaras, 1991;Kollias and Makrydakis, 1995;Hondroyiannis and Papapetrou, 1996;Vamvoukas, 1997;Afonso and Rault, 2009;Paleologou, 2013); while in three studies, the evidence supports the fiscal synchronization hypothesis (Katrakilidis, 1997;Kollias and Makrydakis, 2000;Kollias and Paleologou, 2006).…”