Causality between Tax Revenue and Expenditure in case of Pakistan through Toda Yamamoto Methodology

Ghumro Niaz Hussain, S. Rajper, P.A. Memon

Abstract


The study investigates the actual causal partnership between federal expenditure and federal revenue inside Pakistan by employing Toda-Yamamoto methodology for the period, 1972 to 2014. This statistical methodology opens an additional channel for causation between the government total revenues (LFTR) and expenditures (LFEXP). The empirical upshots reveal the existence of unidirectional causality running from (LFEXP) expenditures to (LFTR) revenues (“spend–revenue” hypothesis). It is suggested to concern authorities the preference of controlling or reducing expenditures.


Keywords


Tax revenue, Expenditure, Granger Causality, Toda-Yamamoto Model.

Full Text:

PDF

References


Aisha, Z., &Khatoon, S. (2009). GovernmentExpenditure and Tax Revenue Causality and Cointegration: The Experience of Pakistan 1972-2007. The Pakistan Development Review, 48(4), 951-959.

Ali, R., & Shah, M. (2012). The Causal Relationship between Government Expenditure and Revenue in Pakistan. IJCRB (Interdisciplinary Journal of Contemporary Research in Business), 3(12), 323-329.

Eita, J. H., &Mbazima, D. (2008). The Causal Relationship between Government Revenue and Expenditure in Namibia. http://mpra.ub.uni-munchen.de/9154/MPRA Paper No. 9154, posted 16. June, 16:04

Granger, C.W.J. (1969) Investigating causal relations by econometric models and cross spectral methods,’ Econometrica, July, 424–38.

Li, X. (2001). Government revenue, government expenditure and temporal causality: evidence from China. Applied Economics, 33, 485-497.

MacKinnon, J. (1990) Critical values for co-integration tests, Working Paper, University of California, San Diego, 24 January.

Mavrotas, G., & Kelly, R. (2001). Old wine in new bottles: Testing causality between savings and growth. The Manchester School, 69, 97–105. doi: 10.1111/1467- 9957.69.s1.6.

Miller, S.M. and F.S. Russek (1990): “Cointegration and Error Correction Models: The Temporal Causality between Government Taxes and Spending”, Southern Economic Journal, vol.57, pp.221-229.

Miller, S. M. (1991). Monetary dynamics: an application of cointegration and error-correction modeling. Journal of Money, Credit and Banking, 23(2), 139-154.

Payne, J. E. (1997). The tax-spend debate: the case of Canada. Applied Economics Letters, 4, 381-386.

Petanlar, S. K., &Sadeghi, S. (2012). Relationship between Government Spending and Revenue: Evidence from Oil Exporting Countries. International Journal of Economics and Management Engineering.

Phillips, P.C.B. (1986) Understanding spurious regressions in econometrics, Journal of Econometrics, 311–40.

Ohania, Lee E. (1988) The spurious effects of unit roots on vector autoregression: a Monte Carlo study, Journal of Econometrics, 251–66.

Owoye, O. (1995). The causal relationship between taxes and expenditures in the G7 countries: cointegration and error-correction models. Applied Economics Letters, 2(1), 19-22.

Raju, S. (2008). The revenue-expenditure nexus: evidence for India. Contemporary Issue and Ideas inSocial Sciences, August 2008, 1-33.

Ram, Rati (1988) Additional evidence on causality between government revenue and government expenditure,’ Southern Economic Journal,January, 763–9.

Sadiq, T. (2010). The Causality between Revenues and Expenditure of the Federal and Provincial Governments of Pakistan. The Pakistan Development Review, 49(4), 651-662.

Subhani, M. I., Hasan, S. A., Osman, A., &Rafiq, T. (2012). An Investigation of Grange Causality between Tax Revenues and Government Expenditures. European Journal of Scientifics Research, 68(3), 340-344.

Toda, H.Y., & Yamamoto, T. (1995). Statistical inferences in vector auto-regressions with possibly integrated processes. Journal of Econometrics, 66(1), 225–250.

Wahid, A. N. M. (2008). An empirical investigation on the nexus between tax revenue and government spending: The case of Turkey. International Research Journal of Finance and Economics, 16, 46-51.

Wong, H. T., & Lim, K. P. (2005). The relationship between government revenue and expenditure in Malaysia. International Journal of Management Studies (IJMS), 12(2), 53-72.


Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.