Abstract
The study investigates the actual causal partnership between expenditure and tax revenue inside Pakistan applying cointegration with error-correction methodology for the period 1979 to 2012. This statistical methodology opens an additional channel for causation between government tax revenues (RTAX) and expenditures (REXP). The empirical upshots reveal the existence of unidirectional causality running from (REXP) expendituresto (RTAX) revenues (spend-revenue hypothesis). It is suggested to concern authorities the preference of controlling or reducing expenditures.
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