Revisiting the Government Revenue-Expenditure Nexus: Evidence from Nigeria Based on the VAR Granger Causality Approach (original) (raw)
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This paper utilizes panel unit root, panel cointegration, and panel Granger causality test techniques to examine the inter-temporal relationship between government revenues and government expenditures in a panel of 15 OECD countries over the period 1992-2006. We find evidence of bidirectional causality between government revenues and government expenditures, supporting the fiscal synchronization hypothesis. The findings of this paper have important implications for fiscal policy decision-making in these 15 OECD countries after the signing of the EU Treaty in Maastricht on February 7, 1992. * The authors thank the referees for their several helpful comments, suggestions, and time spent in reading this paper. These all make this paper more valuable and readable. Any errors that remain are our own.
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The incessant fiscal deficit being experienced in different countries across the world has raised concerns about the ability of government to properly manage its revenues and expenditures. This has necessitated a flurry of studies on the relationship between government revenues and government expenditures over time. However, empirical evidence appears to be mixed, even within a country, depending on the methodological approaches adopted by each researcher. In the light of this, this study examines the asymmetric causality and cointegration between revenues and expenditures using aggregated and disaggregated data. The results of linear causality tests of Granger (1969) and Toda-Yamamoto (1995) support fiscal synchronisation hypothesis while those of nonlinear causality test of Diks and Panchenko (2006) support revenue-spending hypothesis. The results further show the existence of asymmetric cointegration between revenues and expenditures in the short-run and the long-run. The final r...
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Public Revenue-Expenditure Nexus: A Test of Fiscal Synchronization Hypothesis in Nigeria
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Fiscal synchronization hypothesis which argues a bi-directional causality between public 1981 to 2020. Hence, study aims to determine if there is a long-run relationship between public relationship between government revenue and there was a two-way causal relationship between study confirms the validity of fiscal synchronization hypothesis in Nigeria’s states and federal capital territory. It therefore recommended that the state government and the FCT to always revenue and expenditure of the states and FCT in Nigeria in the period of study. Therefore, this revenue and expenditure and to also evaluate the applicability of fiscal synchronization hypothesis in Nigeria. Empirical findings of this study suggest the existence of a long-run study was to test within the Granger causality framework, the validity of the fiscal adoption for most countries most especially, developing economies. Hence, the thrust of this revenue and expenditure, is one of the four basic schools of thought on the nexus between public revenue and expenditure. The hypothesis is one of the mostly advocated and recommended for synchronization hypothesis in Nigeria’s states and Federal Capital Territory (FCT) for the period make their revenue and expenditure decisions simultaneously in order to contract the fiscal deficit gap in the country.
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Fiscal policy, which entails an appropriate alignment in government revenue and expenditure, is of crucial importance in promoting price stability and sustainable growth in output, income and employment. It is one of the macroeconomic policy instruments that can be used to prevent or reduce short-run fluctuations in output, income and employment in order to move an economy to its potential level. However, for sound fiscal policy, a good understanding of the relationship between government revenue and government expenditure is very important, for instance, in addressing fiscal imbalances. Thus, the causal relationship between public revenue and public expenditure has been an issue that has generated heated debates globally, over the years, among economists and policy analysts. Four major hypotheses have emanated from the debates namely: the revenue-spend hypothesis (where there is a unidirectional causality from government revenue to government expenditure); the spend-revenue hypothe...
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