Asymmetries in the revenue–expenditure nexus: new evidence from South Africa

Abstract

In this study, we relax the conventional assumption of a linear cointegration relationship in the revenue–expenditure nexus by examining asymmetric equilibrium effects in the South African fiscal budget using quarterly data collected between 1960:Q1 and 2016:Q2. Our mode of empirical investigation is the MTAR model supplemented with a TEC component. Our estimation results primarily point to a weakly sustainable budget in which there exists bidirectional causality between revenues and expenditures, a result which offers support in favour of the fiscal synchronization hypothesis. Collectively, our empirical results have important implications for South African fiscal policymakers.