Reconnoitering the Sustainable Relationship between Revenue Income and GDP: A Comparative Study of Asymmetric Countries in the World

Abstract

This paper applies panel unit root test, country Pedroni cointegration test (PCT), Phillips-Peron cross section test (PPCST), vector error correction test and Johansen normalized cointegrating test (JNCT) for estimates the coefficients in the short-run and in the long-run to examine the inter-temporal relationship between the government revenues income and GDP. The paper took into account fifteen asymmetric countries with three income groups over the period from 2001 to 2016. The study justified the long run relationship between the articulated variables in the country PCT and the test results unearthed that four statistics out of seven on different indexes exhibited one percent level of significance. In the upper middle income country category, other than Brazil and Sri Lanka, rest of three countries showed a long run relationship, i.e. the study outcome reconnoitered the existence of a long run relationship between the two articulated variables. Decisively, the outcome of JNCT suggests that in the long run if the government revenue upsurge one percentage point then GDP growth rate will rise 0.037 and 0.28 percentage point for the countries that belong to high income and the upper middle income respectively. Meanwhile, the test find a negative result that allied to lower middle income nations, GDP growth rate will plummet 0.039 percent point due to one percent rise in revenue income.