Have Taxes Led Government Expenditures? The United States as a Test Case

George von Furstenberg, R. Jeffery Green and Jin-Ho Jeong

Journal of Public Policy, 1985, vol. 5, issue 3, 321-348

Abstract: This paper explores intertemporal relations between innovations in government receipts and expenditures, by type and in total, at federal and state-local levels in the United States over the period 1955–82. A structural model is specified with tax and spending components as endogenous variables. After estimation with full information maximum likelihood techniques, residuals derived from the reduced form equations are used in causality tests. These tests show that where there is an indication of causality, spending tends to lead taxes. The lesson learned from past data thus appears to be that changing aggregate tax rates does not cause spending to change. Tax initiatives provide little leverage if changes in the growth of government are intended.

Date: 1985
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