The Dynamic Causal Relationship between Government Revenue and Government Expenditure Nexus in Ghana

Wisdom Takumah

MPRA Paper from University Library of Munich, Germany

Abstract: The relationship between government revenue and government expenditure has been an important topic in public economics, given its relevance for policy especially with respect to the budget deficit. The purpose of this paper is to investigate the relationship between government revenue and government expenditure in Ghana for the period of 1986 - 2012. We include GDP as a control variable into the model. Data properties were analyzed to determine their stationarity using the DF-GLS and PP unit root tests which indicated that the series are I(1). We find a cointegration relationship between government revenue and government expenditure. The causality tests indicate that there is a bidirectional causal relationship between government expenditure and revenues in both the long and the short run hence confirming the Fiscal synchronization hypothesis. The policy implication of the results suggests that there is interdependence between government expenditure and revenues. The government makes its expenditure and revenues decision simultaneously. Under this scenario the fiscal authorities of these countries with budget deficits should raise revenues and decrease spending simultaneously in order to control their budget deficits.

Keywords: Government revenue, Government expenditure; Cointegration; Causality, Budget Deficit, Fiscal synchronization, Fiscal policy. (search for similar items in EconPapers)
JEL-codes: C32 E62 H20 H50 H62 (search for similar items in EconPapers)
Date: 2014-09-14
New Economics Papers: this item is included in nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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