Abstract
The paper analyses the relationship between government revenue and expenditure in Lesotho using quarterly data for the period 1991 to 2009. We employ granger causality test, Johansen procedure and error correction model based granger causality test to ascertain whether there is unidirectional causality from taxation to revenue, unidirectional causality from spending to taxation, bidirectional causality or no causality between the two variables. The results indicate that there is unidirectional causality from revenue to expenditure which calls for urgent policy reforms given the eminent decline in Southern African Customs Union (SACU) revenue which accounts for 55 per cent of the total government revenue in Lesotho. In addition, the study finds that causality runs from revenue to recurrent expenditure while there is no causality between revenue and capital expenditure which suggests that more emphasis should be put on capital expenditure.
Highlights
The Southern African Customs Union (SA CU) has its origins fro m 1910
These efforts over the mediu m term would reduce the size of Southern African Customs Union (SACU) revenue pool which relies on tariffs
Where: LREV denotes the log of revenue; LEXPEND denotes the log of expenditure; LRC denotes the log of recurrent expenditure; LCE denotes the log of capital e xpenditure
Summary
The Southern African Customs Union (SA CU) has its origins fro m 1910. Following the independence of the three states, Botswana, Lesotho and Swaziland (BLS) in 1966, a new agreement was signed in 1969. The revenue fro m the SA CU pool has been a h istorical fiscal bulwark for the economy of Lesotho, supporting an enormous chunk of government expenditure. In an effo rt to enhance benefits arising fro m free trade, SACU member states engaged on a program to negotiate various trade agreements with other reg ional bodies. These efforts over the mediu m term would reduce the size of SACU revenue pool which relies on tariffs. The financial crisis and the subsequent global recession worsened the already vulnerable situation It dampened demand for capital and consumer imports in the SACU region. It dampened demand for capital and consumer imports in the SACU region. Eita and Mbazima (2008) po inted out the impo rtance of understanding the relationship between government revenue and expenditure fo r prudent and credible fiscal policy which
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
