Causalities between Components of Public Revenues, and Public Expenditures in Jordan

Abstract

This study investigates the causal relationship between the components of both public revenues and public expenditure in Jordan during the period (1976-2016), as a result of the stationary of all study variables at the first difference. The study uses the causality in the error correction model, which shows an existence of a bidirectional causality between direct tax revenues and capital expenditures, and bidirectional causality between non-tax revenues on one hand, and current and capital expenditure on the other hand, as well as, a unidirectional causality from current expenditures to both direct and indirect tax revenues, and unidirectional causality from capital expenditure to indirect tax revenue, and unidirectional causality from foreign aid to both current and capital expenditure. This study recommended that the government ascertain the nature of the existed causal relationship between public revenues and public expenditures, when it make any decision about changing revenues and public expenditures, to don't leave any negative impact on the government budget, and on the rest of the economic variables later on.