The relationship between government revenue and government expenditure has been an important topic in public economics, given its relevance for policy especially with respect to the budget deficit. Besides the theoretical arguments about this relation, vast empirical literature is also available all over the world. The purpose of this paper is to investigate the relationship between government revenue and government expenditure in IRAN by using annual data and applying the Toda - Yamamoto Granger causality test for the period of 1978 to 2011. it is an important issue for this country but scare empirical literature available on this issue for IRAN.
The research uses the annual time series data which is obtained from the website of Central Bank. Data properties were analyzed to determine their stationary using unit root tests ADF and Zivot-Andrews unit root test which indicated that the series are I(1). The Toda - Yamamoto Granger causality test found unidirectional causality running from government revenue to government expenditure. So, these results consistent with the revenue-spend hypothesis. Our results support the Freidman (1978) and Buchanan-Wagner hypothesis that government revenues cause expenditure.
Akike, Hirotugu 1969 “Fitting Autoregressive Models of Prediction”, Annals of the Institute of Statistical Mathematics, Vol 2, pp. 630-39.
Anderson, W., M.S. Wallace, and J.T. Warner. 1986 “Government Spending and Taxation: What Causes What?”, Southern Economic Journal, Vol. 52, pp. 630-639.
Baghestani,, H., and R. McNown. 1994 “Do Revenue or Expenditures Respond to Budgetary Disequilibria?” Southern Economic Journal 60, pp. 311-322.
Barro, Robert J 1974 “Are Government Bonds Not Wealth?”, Journal of Political Economy, Nov.-Dec., pp. 1095-1118.
Bhat, K. Sham, V. Nirmala and B. Kamaiah. 1993 "Causality between Tax Revenue and Expenditure of Indian States", The Indian Economic Journal, Vol. 40, No. 4, pp. 109-17.
Blackley, R. Paul 1986 "Causality between Revenues and Expenditures and the Size of Federal Budget", Public Finance Quarterly, Vol.14, No. 2, pp. 139-56.
Buchanan, James M. and Richard W. Wegner. 1977 Democracy in Deficit, Academic Press, New York..
Cheng, Benjamin S. 1999 "Causality between Taxes and Expenditures: Evidence from Latic American Countries", Vol. 23, No. 2, pp. 184-192.
Friedman, M 1972 An Economist's Protest, Thomas Horton and Company, New Jersey.
Friedman, M 1978 "The Limitations of Tax Limitation", Policy Review: pp. 7-14.
Furstenberg George M, von, R. Jaffery Green and Jin Ho Jeong 1986 “Tax and Spend, or Spend and Tax” The Review of Economics and Statistics, May, No. 2, pp. 179-188.
Granger, C. W. J. 1969 "Investigating Causal Relationship by Econometric Models and Cross Spectural Methods, Econometrica, 37, pp. 424-438.
Gujarati, D. N. 2003 Basic Econometrics, McGraw Hill Education, 4th Ed., pp. 537-538.
Joulfaian, D., and R. Mookerjee 1990 “The Intertemporal Relationship Between State and Local Government Revenues and Expenditures: Evidence from OECD Countries.” Public Finance, Vol. 45, pp. 109-117.
Lee, J. 1997 “Money, Income and Dynamic Lag Pattern.” Southern Economic Journal, Vol. 64, pp. 97-103.
Manage, N., and M.L. Marlow. 1986 “The Causal Relation between Federal Expenditures and Receipts.”, Southern Economic Journal, Vol. 52. pp. 617-29.
Marlow, Michael L and Neela Manage 1987 "Expenditures and Receipts: Testing for Causality in State and Local Government Finances", Public Choice, Vol. 53, pp. 243-55.
Owoye, O. 1995 "The Causal Relationship between Taxes and Expenditures in the G7 Countries: Co-integration and Error Correction Models", Applied Economic Letters, 2, pp. 19-22.
Peacock, S.M., and J. Wiseman. 1979 “Approaches to the Analysis of Government Expenditures Growth.”, Public Finance Quarterly, Vol. 7, pp. 3-23.
Ram. R. 1988 “Additional Evidence on Causality between Government Revenue and Government Expenditure”, Southern Economic Journal, 54(3), pp. 763-69.
Schwarz, G. 1978 “Estimating the Dimensions of a Model” Annals of Statistics, 6, pp. 461-64.
Copyright: © 2014 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
