Article Sidebar

Submitted
September 16, 2022
Published
April 29, 2023
Download
Full Text PDF
Statistic
Read Counter : 477 Download : 1363

Downloads

Download data is not yet available.

Main Article Content

Abstract

Purpose ─ This article explores the relationship between government revenue, government expenditure, and economic growth for nine emerging market economies using annual data from 1991-92 to 2019-20.


Method ─ This paper distinguishes itself from the existing literature through the application of co-integration tests, vector error correction, DOLS and FMOLS for an empirical investigation of a unique panel data set of select emerging economies across Asia, Africa, Europe and Latin America. A bi-directional causal long-run relationship between economic growth and government expenditure, as well as between government expenditure and government revenue, was found using standard panel co-integration tests.


Findings ─ The long-run elasticities computed using VECM were confirmed from DOLS as well as FMOLS estimates. A one per cent increase in expenditure and revenue, in the long run, would result in an increase in GDP by 0.94 and 0.90 per cent, respectively. Similarly, an increase in GDP by one per cent would lead to an increase in government expenditure by 1.1 per cent. On the other hand, an increase in government revenue by one per cent would cause a corresponding increase in government expenditure by nearly one per cent. The findings of this research point to a positive association between government revenue, expenditure, and economic growth, which will be valuable to policymakers.


Contribution ─ Our combination of country selection covering economies from different continents is a first of its kind to the best of our knowledge. Another contribution is the application of panel cointegration and panel error correction techniques to fully use the panel data set, while most previous studies utilised the typical time series modelling with individual time series data.

Keywords

Government revenue government expenditure economic growth panel co-integration panel vector error correction

Article Details

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

How to Cite
Suresh, A. K., Seth, B. ., Behera, S. R. ., & Rath, D. P. . (2023). An empirical investigation of the relationship between government revenue, expenditure, and economic growth in selected EMEs . Economic Journal of Emerging Markets, 15(1), 101–113. https://doi.org/10.20885/ejem.vol15.iss1.art8
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Abrams, B. (1999). The effect of government size on the unemployment rate. Public Choice, 99(3–4), 395–401.
  2. Afonso, A., & Rault, C. (2009). Spend-and-tax: A panel data investigation for the EU. Economics Bulletin, 29(4), 2542–2548. https://doi.org/10.2139/ssrn.1433678
  3. Akpan, N. I. (2005). Government expenditure and economic growth in Nigeria: A disaggregated approach. Economic and Financial Review, 43(1), 51–69.
  4. Amoah, B., & Loloh, F. (2008). Causal linkages between government revenue and expenditure: Evidence from Ghana. SSRN. https://doi.org/10.2139/ssrn.2266423
  5. Aschauer, D. (1990). Is government spending stimulative. Contemporary Economic Policy, 8(4), 30–46. https://doi.org/10.1111/j.1465-7287.1990.tb00300.x
  6. Baghestani, H., & McNown, R. (1994). Do revenues or expenditures respond to budgetary disequilibria? Southern Economic Journal, 61(2), 311.
  7. Bergh, A., & Henrekson, M. (2011). Government size and growth: A survey and interpretation of the evidence (IFN Working Paper No. 858).
  8. Bonu, N. S., & Pedro, M. (2009). The impact of income tax rates on the economic development of Botswana. Journal of Accounting and Tax Revenue, 1(1), 8–22.
  9. Carboni, O., & Medda, G. (2010). A neoclassical growth model with public spending (Working Paper CRENoS No. 33). Sardinia.
  10. Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20(2), 249–272. https://doi.org/10.1016/S0261-5606(00)00048-6
  11. Edame, G. E., & Okoi, W. W. (2014). The impact of taxation on investment and economic development in Nigeria. Academic Journal of Interdisciplinary Studies, 3(4), 209–218.
  12. Engen, E. M., & Skinner, J. (1992). Fiscal policy and economic growth (NBER Working Papers No. 4223).
  13. Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 55(2), 251–276. https://doi.org/10.2307/1913236
  14. Fasano, F., & Wang, Q. (2002). Testing the relationship between government spending and revenue: Evidence from GCC countries (IMF Working Papers No. 201).
  15. Gemmell, N., & Au, J. (2013). Government size, fiscal policy and the level and growth of output: A review of recent evidence. Journal of the Asia Pacific Economy, 18(2), 203–229. https://doi.org/10.1080/13547860.2013.777535
  16. Gurdal, T., Aydin, M., & Inal, V. (2021). The relationship between tax revenue, government expenditure, and economic growth in G7 countries: New evidence from time and frequency domain approaches. Economic Change and Restructuring, 54(2), 305–337. https://doi.org/10.1007/s10644-020-09280-x
  17. Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–47. https://doi.org/10.1016/S0304-4076(03)00092-7
  18. International Monetary Fund. (2015). Fiscal policy and long-term growth (Policy Papers No. 023). https://doi.org/10.5089/9781498344654.007
  19. Jalata, D. M. (2014). Taxation for economic growth: Evidence from Ethiopia. International Journal of Economics and Empirical Research (IJEER), 2(7), 294–300.
  20. Kao, C., & Chiang, M.-H. (2001). On the estimation and inference of a cointegrated regression in panel data. In B. H. Baltagi, T. B. Fomby, & R. Carter Hill (Eds.), Nonstationary Panels, Panel Cointegration, and Dynamic Panels (Vol. 15, pp. 179–222). Emerald Group Publishing Limited. https://doi.org/10.1016/S0731-9053(00)15007-8
  21. Karagianni, S., Pempetzoglou, M., & Saraidaris, A. (2012). Average tax rates and economic growth: A nonlinear causality investigation for the USA. Frontiers in Finance and Economics, 12(1), 51–59.
  22. Karagianni, S., Pempetzoglou, M., & Saraidaris, A. (2019). Government expenditures and economic growth: A nonlinear causality investigation for the UK. European Journal of Marketing and Economics, 2(2), 52–58. https://doi.org/10.26417/ejme-2019.v2i2-70
  23. Kelly, T. (1997). Public expenditures and growth. The Journal of Development Studies, 34(1), 60–84. https://doi.org/10.1080/00220389708422503
  24. Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24. https://doi.org/10.1016/S0304-4076(01)00098-7
  25. Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), 631–652. https://doi.org/10.1111/1468-0084.0610s1631
  26. Magazzino, C. (2014). The relationship between revenue and expenditure in the ASEAN Countries. East Asia, 31(3), 203–221.
  27. Narayan, P. K. (2005). The saving and investment nexus for China: Evidence from cointegration tests. Applied Economics, 37(17), 1979–1990. https://doi.org/10.1080/00036840500278103
  28. Pedroni, P. (1996). Fully modified OLS for heterogeneous cointegrated panels and the case of purchasing power parity. Bloomington: Department of Economics, Indiana University.
  29. Pedroni, Peter. (2004). Panel cointegration: Asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis (Department of Economics Working Papers No. 15).
  30. Petanlar, S. E., & Sadeghi, S. (2012). Relationship between government spending and revenue: Evidence from oil exporting countries. International Journal of Economics and Management Engineering, 2(2), 95–97.
  31. Rahn, R., & Fox, H. (1996). What is the optimum size of government. Denver: Vernon K. Krieble Foundation.
  32. Roşoiu, I. (2015). The impact of the government revenues and expenditures on the economic growth. Procedia Economics and Finance, 32, 526–533. https://doi.org/10.1016/S2212-5671(15)01428-8
  33. Saibu, O. (2015). Optimal tax rate and economic growth: Evidence from Nigeria and South Africa. EuroEconomica, 34(1), 41–50.
  34. Scully, G. W. (2003). Optimal taxation, economic growth and income inequality. Public Choice, 115(3–4), 299–312.
  35. Ugwunta, O. D., & Ugwuanyi, U. B. (2015). Effect of distortionary and non-distortionary taxes on economic growth: Evidence from Sub-Saharan African countries. Journal of Accounting and Taxation, 7(6), 106–112. https://doi.org/10.5897/JAT2015.0175