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. The main purpose of this paper is to examine the relationship between government revenue and expenditure in Iran using annual time series data spanning from 1978 to 2011. The Iranian economy has been subject to a multitude of structural changes and regime shifts during the sample period. Thus, time series properties of the data are first analysed by Zivot-Andrews (1992) model. The empirical results based on this model indicate that there is not enough evidence against the null hypothesis of unit roots for all of the variables under investigation. Taking into account the resulting endogenously determined structural breaks; the Saikkonen and Luetkephol (2000) cointegration approach is then employed to determine the long-run Relationship between Government Expenditure (GE) and Government Revenue(TR). This cointegration technique accommodates potential structural breaks that could undermine the existence of a long-run relationship between Government Expenditure and Government Revenue.
Al-Yousif Y., Does Government Expenditure Inhibit or Promote Economic Growth: Some Empirical Evidence from Saudi Arabia. Indian Economic Journal 48(2) (2000)
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.
Cheng, Benjamin S. 1999 "Causality between Taxes and Expenditures: Evidence from Latic American Countries", Vol. 23, No. 2, pp. 184-192.
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.
Johansen, S. 1988. Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, 12(1), 231-54.
Johansen, S., Juselius, K. 1990. Maximum Likelihood Estimation and Inference on Cointegration-with Application to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210.
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.
Kunitomo, N. (1996) Tests of unit roots and cointegration hypotheses in econometric models, Japanese Economic Review, 47(1): 79-109.
Lee, J., Strazicich, M. C. 2004. Minimum LM Unit Root Test with One Structural Break, Appalachian State University Working Papers, No.04-17. Retrieved from: http://econ.appstate.edu/RePEc/pdf/wp0417.pdf (Accessed 13.09.2009)
Leybourne, S.J and Newbold, P. (2003) Spurious rejections by cointegration tests induced by structural breaks, Applied Economics, 35(9): 1117-1121.
Lütkepohl, H., and Wolters, J. (2003) Transmission of German monetary policy in the pre-Euro period, Macroeconomic Dynamics, 7: 711-733
Lutkepohl H. (2004). Vector Autoregressive and Vector Error Correction Model, in Lutkepohl, H. and M. Kratzig (ed.), Applied Time Series econometrics, Cambridge University Press.
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.
Pahlavani, M (2005) Cointegration and Structural Change in the Exports-GDP Nexus: The Case of Iran. International Journal of Applied Econometrics and Quantitative Studies, 2-3, forthcoming.
Pahlavani M., Wilson E. J., A. Valadkhani, International Journal of applied Business and Economic Research 4(1) (2006) 23-44.
Peacock, S.M., and J. Wiseman. 1979 “Approaches to the Analysis of Government Expenditures Growth.”, Public Finance Quarterly, Vol. 7, pp. 3-23.
Perron, P. (1997) Further evidence on breaking trend functions in macroeconomic variables. Journal of Econometrics 80(2): 355-385.
Ram. R. 1988 “Additional Evidence on Causality between Government Revenue and Government Expenditure”, Southern Economic Journal, 54(3), pp. 763-69.
Saikkonen, P. and Lütkepohl, H. (2000a) Testing for the cointegrating rank of a VAR process with an intercept, Econometric Theory 16(3): 373-406.
Saikkonen, P. and Lütkepohl, H. (2000b) Testing for the cointegrating rank of a VAR process with structural shifts, Journal of Business and Economic Statistics 18(4): 451-464.
Saikkonen, P. and Lütkepohl, H. (2000c) Trend adjustment prior to testing for the cointegrating rank of a vector autoregressive process, Journal of Time Series Analysis 21: 435-456.Zivot, E., Andrews, D., Journal of Business and Economic Statistics 10 (1992) 251-70.
Schwarz, G. 1978 “Estimating the Dimensions of a Model” Annals of Statistics, 6, pp. 461-64.
Zivot, E., Andrews, D. W. K. 1992. Further Evidence on the Great Crash, the Oil-Price
Shock, and the Unit-Root Hypothesis. Journal of Business and Economic Statistics, 10(3), 251-70.
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