The causal relationship between taxes and expenditures in the G7 countries: cointegration and error-correction models

Oluwole Owoye

157 citations0/0 files storedApplied Economics Letters

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Economic and Fiscal Studies Fiscal Policies and Political Economy Fiscal Policy and Economic Growth

Abstract

The paper examines the causal relationship between tax revenues and expenditures in the G7 countries using cointegration and error-correction methodology. This statistical technique provides additional channels through which causality could emerge. The empirical results show that bidirectional causality exists between government taxes and expenditures in all countries except in Japan and Italy. For Japan and Italy, causality runs from government taxes to expenditures.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1969Investigating Causal Relations by Econometric Models and Cross-spectral Methods 2010Investigating Causal Relations by Econometric Models and Cross-Spectral Methods 1986DEVELOPMENTS IN THE STUDY OF COINTEGRATED ECONOMIC VARIABLES 1986Understanding spurious regressions in econometrics 1980The Growth of Government 1986Unit Roots in Time Series Models: Tests and Implications 1993Southern Economic Journal

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