Fiscal Synchronization Hypothesis Research Articles

To Starve the Beast or Not to Starve the Beast? Evidence from Debt-Distressed Region

ABSTRACT The elimination of budgetary disequilibrium remains a contentious issue, with scholars and policymakers debating the efficacy of tax alterations versus limiting government outlays. This topic has garnered significant attention, although research on the spending-revenue nexus is noticeably skewed against Africa, which presents an intriguing research opportunity. The International Monetary Fund (IMF) reported a concerning rise in public debt across Africa, highlighting the urgent need for public finance consolidation. In contrast to the extant literature, this study examines the dynamic link between revenues and expenditures from 1990 to 2022. Applying wavelet decomposition to account for temporary variations, our analysis reveals dynamic patterns in the revenue-expenditure nexus. Our findings support the institutional separation hypothesis in the short run, suggesting a distinct relationship between revenues and outlay. However, in the medium-to long-run, our results support the fiscal synchronization hypothesis, accentuating a more intertwined association between revenues and expenditures. This study sheds light on the nuanced dynamics of budgetary equilibrium in Africa, providing insights that can inform policy priorities and decision-making. Finally, by focusing on the unique context of Africa and using advanced techniques, this study contributes to the existing literature on budgetary equilibrium, filling a crucial gap in our knowledge of the public finance dynamics in the region.

Public Revenue-Expenditure Nexus: A Test of Fiscal Synchronization Hypothesis in Nigeria

Public Revenue-Expenditure Nexus: A Test of Fiscal Synchronization Hypothesis in Nigeria

The relationship between LNG price, LNG revenue, non-LNG revenue and government spending in China: An empirical analysis based on the ARDL and SVAR model

The present paper examines the dynamic relationship between liquefied natural gas (LNG) price, LNG revenue, non-LNG revenue and government spending (GOVS) in China using autoregressive distributed lag (ARDL) and structural vector auto-regressive (SVAR) model. The goal of carrying out ARDL and SVAR together is to consolidate and strengthen the consistency of the results obtained from both approaches. ARDL results show that a positive influence relationship between both short-run and long-run LNG prices, LNG revenue, non-LNG revenue and GOVS, but there was no significant relationship between LNG price and GOVS. The SVAR also substantiates the results of ARDL test and provides further insight which shows that long-run fiscal synchronization hypothesis is evidenced between the LNG revenue and GOVS, while spend-tax hypothesis exists in the long-run between GOVS and non-LNG revenue. It is also evidenced that there is a complementary relationship between LNG revenue and non-LNG revenue, but this complementary role is stronger than the substitution role. Since non-LNG revenue has a greater impact on GOVS in the short-run, and the impact of LNG prices and LNG revenue on GOVS in the long-run increases over time, thus, GOVS mitigates the direct impact of non-LNG revenue to some extent, and that an appropriate allocation of spending in the non-LNG industry will have a positive impact on the development of the market economy supporting the Keynesian and spend-tax hypothesis.

Is the Fiscal Deficit of ASEAN Alarming? Evidence from Fiscal Deficit Consequences and Contribution towards Sustainable Economic Growth

The Association of Southeast Asian Nations (ASEAN) has faced a persistent fiscal deficit for the last three decades. In the vast literature, a question is still arising: is ASEAN’s fiscal deficit alarming? This study explores the fiscal deficit with different perspectives to provide guidelines for policymakers to answer this question. For this purpose, we offer fiscal causal hypotheses estimates, including the contribution of Government expenditures (GEs) and Government revenues (GRs) towards sustainable economic growth; we then evaluated two additional deficit hypotheses, the impact of fiscal deficit and deficit financing on inflation. This empirical analysis covered annual financial data for the years 1990 to 2019 of ten member countries of ASEAN by applying panel econometric techniques, which include unit root Levin, Lin, and Chu (LLC) and Im, Pesaran, and Shin (IPS) tests; the panel autoregressive distributed lag (ARDL) model for cointegration; and the Dumitrescu–Hurlin (DH) test for causality. The findings revealed that government expenditures contribute more towards sustainable economic growth while government revenues are inversely related to growth in the long run. The DH causality test supported the fiscal synchronization hypothesis and current account targeting hypothesis in ASEAN. The interest rate is found as a moderator between fiscal and current account deficits. Furthermore, the findings showed that the fiscal deficit of ASEAN could generate inflation while relying on outstanding debt. Overall, our findings concluded that the fiscal deficit of ASEAN is alarming based on the behavior of government revenues, interest rate dynamics, political stability, and outstanding debt in deficit financing.

Taxes, Expenditure and Development Nexus: A Panel VECM Analysis on Romanian NUTS2 Regions

The investigation starts with the computation of the Socio-Economic Development Index (SEDI index) with data for Romania. Based on the index values, the long-run relationship between taxes and expenditure is assessed, for Romanian NUTS2 regions from 2000 to 2016. According to the results, there is a Granger causality relationship from budget revenue and expenditure to SEDI. The results emphasize the significant impact of taxes and expenditure on socio-economic development. The paper underlines the need for effective public strategies to be implemented by the authorities at the regional level, which may propel the socio-economic development. The results support the fiscal synchronization hypothesis.

INVESTIGATING THE GOVERNMENT REVENUE–EXPENDITURE NEXUS: EMPIRICAL EVIDENCE FOR THE FREE STATE PROVINCE IN A MULTIVARIATE MODEL

This paper examines the government revenue–expenditure nexus for the Free State Province in a multivariate vector error correction model (VECM) using real GDP and inflation as control variables over the period 2004Q2–2018Q1.Cointegration and intertemporal (causal) links among variables were established employing Johansen (1995) and Toda-Yamamoto (1995) non-Granger causality tests. The results of the cointegration analysis confirm the existence of a long-run relationship between variables. The results of the causal analyses show a bidirectional causality between government revenues and expenditures in both the long-run and short-run supporting the fiscal synchronization hypothesis. Real GDP and inflation individually Granger-causes government revenue, in both the long-run and short-run, stressing their importance on generating revenue. Based on these findings, an isolated fiscal measure to raise tax-revenues or cut expenditure will exacerbate fiscal imbalance. On the policy front, the Free State government should adhere to a planned budget process, devise innovative revenue-generating strategies to circumvent the burden of producing inflation revenue, as well as utilize its autonomy on fiscal instruments to maintain a sustainable fiscal policy path, and stimulate economic growth.

Kamu Gelir-Harcama Bağlantısı: Asimetrik Nedensellik Testi

The purpose of this study is to examine the asymmetric relationship between government revenues and expenditures for Turkish economy. In this study, the data cover the period of 2006Q1-2019Q3. In this study, unliker the literature, the relationship between variables is investigated asymmetrically. The asymmetric causality relationships were tested by using Asymmetric Causality Test developed by Hatemi-J (2012). The asymmetric causality approach divides the series into two as positive shocks and negative shocks and captures nonlinear effects in the series. The data of this study contain quarterly observations of the total expenditures, total revenues and tax revenues based on sub-items over the 2006: Q1-2019: Q3 time period for the Turkish economy. In this study, because of data constraint, the data started in 2006: Q1.The empirical findings of this study indicate that the Fiscal Synchronization Hypothesis is valid for the relationships between total expenditures and total revenues. However, when the relationship between total expenditures and tax revenues is evaluated, it is seen that the Spend-andTax Hypothesis is valid. According to the findings, there is bidirectional causality between total revenues and government expenditures in Turkish economy, symmetrically. There is a symmetric bidirectional causality between tax revenues and government expenditures. Also, negative cumulative total revenues cause the negative cumulative expenditures, asymmetrically.

The Relationship Between Tax Revenue and Public Social Expenditure in the EU Member States

Purpose: The objective of this paper is to identify, with the use of statistical methods, the relationship between the level of fiscalism and the ratio of social expenditure to the total public expenditure in the EU-28. Design/Methodology/Approach: Linear regression and correlation were used to assess the interdependence between the tax revenue-to-GDP ratio and the ratio of social expenditure to the total public expenditure in the EU-28. Then, using the direction of the slope as the criterion, the EU 28 were classified into countries with a positive relationship (the lower and upper border of the confidence interval are positive) and countries with a negative relationship (the lower and upper border of the confidence interval are negative). Findings: The research confirmed that the EU Member States with a high level of fiscalism in 2004-2018, in principle, were characterised by the following interdependence: the higher the tax revenue-to-GDP ratio was, the higher the ratio of social expenditure to the total public expenditure was. After the decomposition of public expenditure, a similar relationship was identified for public expenditure on social protection, while no such relationship was identified for other categories of expenditure for social purposes. Practical Implications: The research results are important as the EU-28 are striving to maintain fiscal stability. The research findings point to the need of verifying the tasks in the field of social protection in countries with a high level of fiscalism. Increasing these tasks, mean a further increase in the tax burden on the economy. Originality/Value: The research adds value to the testing of the fiscal-synchronization hypothesis. The originality of the research mainly results from its detailed nature. The relationship between the level of fiscalism and public expenditure was identified not in general terms but incurred for tasks related to the implementation of social policy in the individual EU-28.

The Government Revenue–Expenditure Nexus in Southeast Europe: A Bootstrap Panel Granger-Causality Approach

ABSTRACT This article presents one of the first attempts to explore the relationship between government revenues and government expenditures in six Southeast European countries for the period 1999–2015, employing a bootstrap panel Granger-causality approach, which provides insight into the nature and direction of their relationship in each country. The empirical results indicate a unidirectional relationship from government revenues to government expenditures in five countries (Albania, Bulgaria, Croatia, Serbia, and Slovenia), confirming the revenue-expenditure or tax-spend hypothesis. The findings offer support for the fiscal synchronization hypothesis only in Macedonia, where bidirectional causality between government revenues and government expenditures was found.

Asymmetric Relationship Between Government Revenues and Expenditures in a Developing Economy: Evidence from a Non-linear Model

Understanding the revenue–expenditure nexus is the core essence of this research in the Pakistani context. This research examines the non-linear relationship between government revenues and government expenditures during 1972–2014. The recently developed non-linear co-integration technique has been used along with the symmetry test. The result shows that the revenues and expenditures have co-integration and provide the evidence in favour of fiscal synchronization hypothesis in the budgetary process. Moreover, the finding also reveals that the relationship between these two fiscal elements is asymmetric and negative changes in revenues and expenditures have a greater impact than the positive ones. Furthermore, another important aspect that was revealed during the study was that the negative shocks in the revenues will lead towards the drastically large increase in the expenditure.

The effects of oil shocks on government expenditures and government revenues nexus in Nigeria (with exogeneity restrictions)

The study employed data from 1981 to 2014 to investigate the effects of oil shocks (price and revenue) on the dynamic relationship between government revenues and government expenditures in Nigeria and how it transmits effects on major macroeconomic variables using structural VAR (SVAR) on key variables, and also employed unrestricted VAR and Vector Error Correction (VEC) Models on expanded number of variables. The results of SVAR show that oil price shocks could not predict the variation in government expenditure in the short-run, while the predictive power of oil revenue shocks is very strong both in the short-run and in the long-run. The VAR and VECM also substantiate the results of SVAR and provide further insight which shows that short-run fiscal synchronization hypothesis is evidenced between the oil revenues and total government expenditures, while spend-tax hypothesis exists in the long-run between total expenditures and total revenues. It is also evidenced that oil shocks highly affect policy variables in the short-run and transfer the effects on the other macroeconomic variables in the long run. Thus, the study suggests expedient government actions to redirect the economy from oil revenue dependency towards diversifications along other less volatile sources of revenues so as to prevent long-run transmission of effects of oil shocks on broader macroeconomic variables.

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

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.

Government spending and revenues in Sweden 1722\u20132011: evidence from hidden cointegration

This study examines the long-run causal relationship between government revenues and spending of the Swedish economy over the period 1722–2011. The results based on hidden cointegration technique and a modified version of the Granger non-causality test, show that there exists a long-run and asymmetric relationship between government spending and government revenues. Our estimation results can be summarized into three main empirical findings. First, the government follows a hard budget constraint and soft budget constraint strategies in the case of negative and positive shocks, respectively. Second, negative shocks to the fiscal budget are removed fairly quickly compared to positive shocks. Third, bi-directional causality between revenues and expenditures offers support in favor of the fiscal synchronization hypothesis. The policy implication is that budget deficit’s reduction could be achieved through government spending cut, accompanied by contemporaneous tax controls.

Cointegration between Government Expenditure and Revenue: Evidence from India

The study examines the nexus between tax revenue of the government and public expenditure in India using Johensen-Juselius cointegration Methodology during 1980-81 to 2013-14. It tests four hypotheses relating to the revenue-expenditure nexus, i.e. tax-spend hypothesis, spend-tax hypothesis, fiscal synchronization hypothesis and institutional separation hypothesis. The nexus is studied at centre, state and combined level. The study establishes one cointegrating relationship between public expenditure and tax revenue which suggests a long-run relationship between the two. The results of the Vector Error Correction Models evince that there is one-way causality running from tax revenue to expenditure both in short-run as well as in the long-run. This result justifies the operation of tax-spend hypothesis. The reverse-causality is not found in the analysis either for short or long-run.

Fiscal sustainability in the presence of structural breaks: Does overconfidence on resource exports hurt government’s ability to finance debt? Evidence from Nigeria

AbstractThe sustainability of the Nigerian fiscal deficit along with the role of the dynamics of government revenues and spending in adjusting the size of the deficit is examined using annual data from 1961 to 2014. After allowing for structural breaks, the study finds evidence of a cointegration relation between the government revenues and spending. The results did not indicate the presence of asymmetries in either the threshold autoregression or momentum threshold autoregression specifications of the country’s budgetary adjustment process. Interestingly, the size of the long run slope parameter appears to be significantly less than one, thus offering support for the soft budget strategy, which also suggests that the government might face difficulties in financing its debts in the long run. Lastly, the short run and long run Granger causality results, while providing evidence in support of the fiscal synchronization hypothesis, also raise some important issues, particularly on the strength of budget defi...

Tax-Spend, Spend-Tax or Fiscal Synchronization Hypothesis: Evidence from Iran

The relationship between revenue and government expenditure is an important subject in public economics especially for Iran country, which is suffering from persistent budget deficits. From point of view of theoretical studies, there are essentially four schools of thought on the direction of causation between government expenditure and revenue. The main purpose of this study is to investigate the Long and short Run relationship between government revenue and government expenditure in Iran Country covering data 1978- 2012 with using An Auto Regressive Distributive Lag (ARDL) Approach. The Iranian economy has been subject to a multitude of structural changes and regime shifts during the sample period. First, time series properties of the data are first analysed by Augmented Dickey-Fuller (ADF), Zivot-Andrews and Lee – Strazicich (2003, 2004) model. The results of the ADF and Lee – Strazicich models indicate that all series under investigation are non-stationary at level. However, it is evident from the results of Augmented Dickey-Fuller and Lee – Strazicich tests that revenue and government expenditure are stationary at first difference because null hypotheses of unit roots for all the variables are rejected at 1 percent significance level then, we investigated causality between revenue and government expenditure by using an application of Toda-Yamamoto approach. Their evidence generally found unidirectional causality running from government revenue to government expenditure. So, these results consistent with the revenue-spend hypothesis. In the three stage, Autoregressive Distributeded Lag (ARDL) technique is used to describe both long run relationships and short run dynamic adjustments between government revenue and expenditure variables. The results of this paper support the Freidman (1978) hypothesis that government revenues cause expenditure and revenues have a positive causal impact on government expenditure.

Fiscal Sustainability: A Panel Cointegration for CEE Countries

DOI: 10.6007/IJAREMS/v2-i5/348 URL: http://dx.doi.org/10.6007/IJAREMS/v2-i5/348 Abstract. The study assesses the sustainability of public finance in CEE countries using stationary and cointegration analysis. Data series properties were analyzed to determine their stationarity using the LLC and IPS unit root tests which resulted that the series are integrated of order one. By applying Kao and Perroni panel cointegration tests a relationship between government revenue and government expenditure has been founded. The causality tests indicate that there is a bidirectional causal relationship between government expenditure and revenues in both the long and the short run and Fiscal synchronization hypothesis is confirmed Kewords: Intertemporal fiscal constraint, panel co integration, fiscal sustainability,

�REVENUE-SPEND� OR �SPEND-REVENUE� HYPOTHESISES. THE ZIMBABWEAN EXPERIENCE.

ABSTRACT There is a growing interest in literature on the relationship between government revenue and government expenditure. The main reason for that interest is that it has implications on the solution to the problem of budget deficit. Zimbabwe has a problem of growing budget deficit since independence in 1980 and researching on how to solve that problem becomes relevant. The relationship obtaining between Government revenue and Government expenditure can be described by any one of Tax-and-Spend, Spend-and-Tax, or Fiscal Synchronization Hypothesis. This study examines the relationship between government revenue and expenditure in Zimbabwe using fiscal data covering 1980 to 2007. The idea is to establish the existence or otherwise of a causal relationship and the direction of causality among the variables. Granger causality and Johansen cointegration methods were employed to produce empirical evidence on the relationship between government revenue and government expenditure so that appropriate policy measures to address some of the fiscal challenges facing Zimbabwe can be informed. The variables were found to be stationary at levels. The Johansen Cointegration test showed the existence of at least one cointegration relationship. Evidence of causality running from government revenues to government expenditures was found. The immediate implication is that Zimbabwe is characterised by the tax-spend hypothesis. The study thus calls upon fiscal authorities to focus attention on adjusting tax revenues in order to control spending and the size of budget deficits. Keywords Government revenue, Government expenditure, Granger causality, Johansen Cointegration, Tax-and-Spend, Spend-and-Tax, Fiscal Synchronization Hypothesis

Government spending and revenues in the Greek economy: evidence from nonlinear cointegration

This paper attempts to re-evaluate the long-run macroeconomic relationship between government revenues and expenditures of the Greek economy over the period 1999–2010. The empirical analysis applies the newly developed asymmetric ARDL cointegration methodology of Shin et al. (2011) which permits more flexibility in the dynamic adjustment process towards equilibrium, than in the classical case of a linear model. Our findings point towards the fiscal synchronization hypothesis, supporting evidence of asymmetric interactions between the two fiscal components in both the long- and the short-run time horizon. More particularly, in the long-run, the negative changes of expenditures dominate the response of revenues, while the opposite applies in the response of expenditures.

Revisiting the Government Revenue-Expenditure Nexus: Evidence from Nigeria Based on the VAR Granger Causality Approach

The relationship between government revenue and government expenditure is important, given its relevance for policy especially with respect to the budget deficit. The purpose of this study is to examine the structure of federal government revenue and expenditure in Nigeria, from 1961-2010. It investigates the causal relationship between government revenue and government expenditure, using Granger causality test through cointegrated vector autoregression (VAR) methods; so as to determine whether the tax-spend hypothesis, spend-tax hypothesis, fiscal synchronization hypothesis, or the fiscal neutrality hypothesis hold in the relationship between government revenue and expenditure for Nigeria. The result shows that there is a bi-directional causality between government revenue and government expenditure. The outcome of the bi-directional causality between government revenue and expenditure supports the fiscal synchronization hypothesis. This therefore, suggest that the federal government should not make spending-tax decisions in isolation of tax-spend decisions. This is because the joint determination of revenues and expenditures is appealing as long as it effectively restrains the budget deficit. Therefore, efforts at enhancing sources of revenue should be accompanied by reductions in government spending for Nigeria.