The intertemporal relation between government revenue and expenditure in the United Kingdom, 1750 to 2004

Lusine Lusinyan and John Thornton

Applied Economics, 2012, vol. 44, issue 18, 2321-2333

Abstract: We examine the intertemporal relation between government revenue and expenditure in the UK during 1750 to 2004. We pay particular attention to long run trends by applying a battery of unit root and cointegration techniques to the data, and we use a modified Granger causality test on data spans organized around structural breaks in the series. The results suggest that, allowing for structural breaks, UK real revenue and spending are I (1) series and cointegrated and that Granger causality runs from government spending to revenue. As such, the ‘spend-tax’ hypothesis appears to best characterize the long run intertemporal relation between government revenue and spending in the UK.

Date: 2012
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Working Paper: The Intertemporal Relation Between Government Revenue and Expenditure in the United Kingdom, 1750-2004 (2010)
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DOI: 10.1080/00036846.2011.564142

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