The Relationship between Tax Revenues and Government Expenditures in European Union and Non-European Union OECD Countries

Oluwole Owoye and Olugbenga A. Onafowora
Additional contact information
Oluwole Owoye: Western Connecticut State University, Danbury, CT, USA, Owoyeo@wcsu.edu
Olugbenga A. Onafowora: Susquehanna University, Selinsgrove, PA, USA

Public Finance Review, 2011, vol. 39, issue 3, 429-461

Abstract: This article examines the causal relationship between tax revenues and government expenditures in twenty-two OECD countries, eleven European Union (EU) member states, and eleven non-EU. We use the Autorgressive Distributed Lag (ARDL) bounds test and the Toda-Yamamoto Granger noncausality approach to test for causality. The results show that the long-run and short-run causal patterns differ across these groups within the Organisation for Economic Co-operation and Development (OECD). For the long-run causal patterns, we find evidence to confirm the tax-and-spend hypothesis in eight of the twenty-two countries; but the evidence is more prevalent within the EU countries, where tax burdens are much higher, than in the non-EU OECD countries. In addition, the long-run causality results also confirm the institutional separation hypothesis in twelve countries, with two-thirds coming from the non-EU OECD countries. While we have no evidence to support the fiscal synchronization hypothesis in the long run, the short-run results show evidence of fiscal synchronization in five out of twenty-two countries.

Keywords: EU; OECD; tax revenues; government expenditures; causality; ARDL bounds test (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/1091142110386211 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:39:y:2011:i:3:p:429-461

DOI: 10.1177/1091142110386211

Access Statistics for this article

More articles in Public Finance Review
Bibliographic data for series maintained by SAGE Publications ().