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Tax more or spend less? Asymmetries in the UK revenue-expenditure nexus

James Saunoris and James Payne ()

Journal of Policy Modeling, 2010, vol. 32, issue 4, 478-487

Abstract: Unlike previous research on the causal relationship between government revenues and expenditures in the United Kingdom, this study estimates an asymmetric error correction model within a momentum threshold autoregressive framework over the period 1955-2009. The results indicate that government revenues respond to short-run changes in government expenditures as well as asymmetrically to budgetary disequilibrium. With respect to the asymmetric adjustment, the response of government revenues to a worsening budget is faster (in absolute terms) than to an improving budget. Thus, contrary to previous studies on the UK, the empirical findings lend support for the spend-tax hypothesis.

Keywords: Revenues; Expenditures; Budget; deficits; Asymmetries (search for similar items in EconPapers)
Date: 2010
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