panel data modelling and the tax spend controversy in the euro zone this article attempts to differentiate between the debatable tax and spend spend and tax fiscal synchronization and institutional separation hypotheses in order to explore empirically the interplay between public expenditures and public revenues in the economic and monetary union emu member states for this purpose panel data models are derived to test the validity of the four hypotheses in emu countries a notable characteristic of this article is that the four hypotheses are tested by dividing emu countries into various subgroups and using disaggregated data for government expenditures and revenues seeking for the robustness of the empirical evidence the panel data methods of generalized two stage least squares gtsls and generalized method of moments gmm are accordingly applied to identify the relationship between public outlays and taxation receipts gtsls and gmm results strongly support the fiscal synchronization hypothesis implying that budget decision making is significantly influenced b

co integration and error correction models the temporal causality between government taxes and spending several interesting papers have recently considered whether government taxes granger cause government spending or vice versa the findings based on standard granger 6 causality tests are not consistent manage and marlow 10 conclude that when evidence of one way causality exists federal taxes granger cause federal spending while anderson wallace and warner 1 conclude that the evidence supports one way causality in the opposite direction ram 11 reexamining the issue concludes that taxes granger cause spending at the federal level but that spending granger causes taxes at the state and local level von furstenberg green and jeong 13 in another related article examine the tax and spend spend and tax causality issue using a more general vector autoregressive var model they introduce in addition to federal taxes and spending two economic variables the gnp gap and the inflation rate decompose federal spending into several categories and remove the effects of automatic stabilizers when appropriate they find little evidence that taxes granger cause spending and limited evidence that spending causes taxes a finding which corresponds most closely to that of anderson wallace and warner 1 our purpose is to reconsider the causality issue with the aid of co integration and errorcorrection modeling our analysis illustrates with a specific example how sources of causality can be neglected in standard granger causality tests moreover addressing the question of temporal causality between government taxes and spending provides insight as to how different policies might or might not help control the growth of government the results of our estimating various co integration and error correction models with quarterly data suggest bi directional causality between government taxes and spending both for the federal and state and local sectors this finding counters the conclusions of previous studies when annual data are used however our

cyclical factor utilization abstract we introduce procyclical labor and capital utilization as well as costs of rapidly increasing employment into a business cycle model plausible variations in factor utilization enable us to explain observed variability of real gnp with considerably smaller economy wide disturbances the costs of adjustment create very interesting and realistic lead and lag relationships employment does not peak until a full quarter after output workweeks effort capital utilization and productivity all sharply lead the business cycle

dynamics of government revenues and expenditures in industrial economies the sources of growth in government revenues and expenditures in 22 oecd countries is addressed the question of whether the revenue constraint is binding on the growth of government expenditures or whether the displacement effect of expenditure growth is binding is considered controls for the effects of the output gap and inflation rate on government revenues and expenditures in each of the 22 countries are presented a major conclusion is that reductions in spending are essential to reducing budget deficits and controlling government size

an examination of the causal relationship between government spending and revenue a cointegration analysis this paper tests the validity of the proposition that there is a causal relationship between government expenditure and government revenue for greece over the period 1957 1993 the empirical analysis employs tests of cointegration as pre tests for granger tests of causality the empirical evidence suggests that there is a long run relationship between government spending and government revenue and expenditures cause revenues

government spending and taxation what causes what in the past few years as federal deficits have risen to high nominal levels economists have argued about the effect that raising taxes ostensibly to reduce deficits might have on government spending some economists including milton friedman have argued that raising taxes will simply lead to more spending others including james buchanan and richard wagner have said that the high deficits themselves have been responsible for the growth of federal spending and that if that spending had to be financed completely by direct taxes people would demand that the federal government spend less a third group led by robert barro says that increased taxes and borrowing are results of increased government spending in section ii we briefly review various hypotheses about the relationship between federal government spending and revenues section iii describes the testing procedure used to discriminate between these hypotheses the results of four tests are presented in section iv section v contains a summary and major conclusions to foreshadow what follows we find no evidence that higher real federal taxes today lead to either higher or lower federal spending tomorrow on the other hand we find strong evidence that higher spending now will lead to higher taxes later our results support a view of the world in which the political system somehow determines how much to spend and then looks for revenue sources to finance that level of spending including direct taxation borrowing and money creation we also find evidence that real federal revenues are positively affected by real gross national product gnp real federal spending also rises with real gnp but it appears to be independent of the rate of inflation

did technology shocks cause the 1990 91 recession real business cycle theory has been used to determine the statistical properties of aggregate fluctuations induced by technology shocks the finding is that technology shocks have been an important contributor to fluctuations in the u s economy for example finn e kydland and prescott 1991 estimate that if the only impulses were technology shocks the u s economy would have been 70 percent as volatile as it has been over the postwar period in this paper we employ the theory to answer the question did technology shocks cause the 1990 1991 recession answering this question requires the determination of the effects of technology shocks on the path of the economy the procedure that we use to make this determination is as follows first we construct a model economy and calibrate it so that its steady state matches actual 1987 values data for other years are used to determine the realizations of the shocks and the nature of the stochastic processes generating these shocks given these stochastic processes the equilibrium decision rules for our calibrated economy are computed we then construct the path for the economy implied by the model for the period 1984 1 1992 3 we set 1984 1 model values of the state variables equal to actual 1984 1 values and use the decision rules and the realized shocks to construct this path finally we examine whether the model economy experiences a recession in 1991 as did the u s economy business cycles are variations in output per adult that are in large part accounted for by variation in the per adult time allocated to market production figure 1 plots the time path of the per adult labor input during the 1983 1 1989 1 period there was a remarkable 12 percent increase in the labor input per adult beginning in 1990 2 there has been a decline of nearly 6 percent in this per adult labor input an unusual feature of the recovery subsequent to the 1990 1991 recession is that this labor input variable has continued to decline well into the recovery this unusual behavior leads to a related question did technology shocks cause the slow recovery we found it necessary to modify the standard real business cycle model in four ways in order to answer the posed question first given the enormous changes in the relative prices of durables as depicted in figure 2 we could not treat technology change as being neutral with respect to different types of final goods following john b long and charles plosser 1983 and jeremy greenwood et al 1992 we consider multiple production sectors with technology change differing across sectors second we assume that there is a technology employed within the household sector that produces a consumption flow from the stock of consumer durables third we consider land to be a factor of production in addition to labor and capital our fourth modification is to introduce population growth

explaining business cycles a multiple shock approach abstract aiyagari 1992 and prescott 1986 1991 claim that a large fraction of the variance of united states quarterly detrended real gnp is attributable to an unobservable shock to total factor productivity this paper argues that the importance of a productivity shock in explaining the variance of output is fundamentally indeterminate any model that is in accord with the several time series that make up united states macroeconomic data must feature multiple shocks that are correlated at all leads and lags sorting out the separate effects of these various shocks on a single variable such as real gnp is impossible we illustrate this argument using a multiple shock version of the king plosser rebelo 1988 benchmark real business cycle model

keynesian impulses versus solow residuals identifying sources of business cycle fluctuations we employ a neoclassical business cycle model that builds on the greenwood hercowitz and huffman 1988 variable utilization framework to study two sources of business cycl e fluctuations marginal efficiency of investment shocks and total factor productivity shocks the parameters of the model are estimated using a bayesian procedure that accommodates prior uncertainty about their magnitudes from these estimates posterior distributions of the two shocks are obtained the postwar u s experience suggests that both shocks are important in understanding fluctuations but that total factor productivity shocks are primarily responsible for beginning and ending recessions

government revenue government expenditure and temporal causality evidence from china dissatisfied with little evidence provided on various hypotheses concerning the revenue expenditure relation in china this paper is an empirical endeavour to fill the gap through a battery of econometric tests for causality based on vector error correction and vector autoregression models a more comprehensive testing strategy for unit roots and cointegration has been suggested and a bidirectional causality pattern has been found in china s government finance the paper thus concludes that attempts simply to change revenue or expenditure or both without taking into account of the interdependence between the two may be counter productive and the effects on aggregate demand of government debt financing in the presence of inflation may not be as detrimental as some economists would expect

government revenue and government expenditure nexus evidence from developing countries the relationship between government revenue and government expenditure has attracted a lot of interest given its policy relevance particularly with respect to budget deficits the goal of this paper is to investigate evidence for causality between government revenue and government expenditure within a multivariate framework by modelling them together with gross domestic product for 12 developing countries our application of the toda and yamamoto 1995 test for granger causality reveals support for the tax and spend hypothesis for mauritius el salvador haiti chile and venezuela for haiti there is evidence for the spend and tax hypothesis while for peru south africa guatemala uruguay and ecuador there is evidence of neutrality

causality and comovement between taxes and expenditures historical evidence from argentina brazil and mexico abstract this paper presents empirical tests for stationarity of fiscal deficits for three latin america countries it also examines the causality patterns between government expenditures and government revenues long historical series covering most of the 20th century for argentina brazil and mexico are used the findings suggest that deficits were stationary in argentina and mexico but not in brazil

do revenues or expenditures respond to budgetary disequilibria the post world war ii increase in the size of the federal government has led to a number of theoretical and empirical investigations of the sources of this growth in particular economists have questioned whether increases in the size of the federal budget tend to be initiated by changes in expenditures followed by revenue adjustments by the reverse sequence or both friedman for example argues that governments adjust expenditures to the level of revenues so that control of taxation is essential to limit growth in government 13 alternatively the spend and tax model posits that revenues will be adjusted to finance any politically chosen level of expenditures a third perspective reflecting the institutional separation of allocation and taxation functions of the federal government hypothesizes the independent determination of revenues and expenditures the goal of this investigation is to test these three alternative theories of the budgetary process for the united states

the causal relation between federal expenditures and receipts federal expenditures have consistently exceeded federal revenues since 1970 in fact the federal government has seen a surplus in only five years since 1950 the symptoms of such fiscal imbalance are of course budget deficits while budget deficits are nothing new in u s history the recent and projected size of the deficit during peacetime nonrecessionary years has been the cause of much concern to academics the news media and politicians this preoccupation with federal deficits has produced a variety of policy proposals to deal with them

tax and spend spend and tax or fiscal synchronization new evidence for ten countries cointegration and vector autoregression are used to test the tax and spend spend and tax and fiscal synchronization for ten countries using annual time series data over the period 1951 to 1996 three of them are part of the newly industrialized countries of asia south korea taiwan and thailand and seven are industrialized countries australia canada japan new zealand south africa uk and the usa this paper includes gdp as a control variable into the model like baghestani and mcnown 1994 ross and payne 1998 and koren and stiassny 1998 the johansen 1988 and johansen and juselius 1990 cointegration test results indicate that these three variables are cointegrated with two cointegrating vectors for south korea one vector for australia canada south africa taiwan uk and the usa and no vector for japan new zealand and thailand the results from granger causality tests suggest unidirectional causality running from revenues to spending supporting the tax and spend hypoth

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

exploring the oil price and real gdp nexus for a small island economy the fiji islands the goal of this paper is to examine the relationship between real gdp and oil prices using time series data for the period 1970 2005 our main finding is that an increase in oil has a positive albeit inelastic impact on real gdp inconsistent with the bulk of the literature we argue that this is not a surprising result for the fiji islands our central argument focuses on two aspects of the fijian economy 1 the fact that actual output in fiji has been around 50 per cent less than potential output thus fiji s actual output has not reached a threshold level at which oil prices can negatively impact output and 2 a rise in oil prices filters through to value added which in turn is reflected in a larger actual output

using theory for measurement an analysis of the cyclical behavior of home production abstract a significant amount of economic activity takes place within the home unfortunately it is difficult to assess the cyclical properties of home production because the available data are too sporadic using a real business cycle rbc model we construct quarterly data on three variables that are unobservable at a quarterly frequency hours worked in the home sector hours spent in leisure and the consumption of home produced goods three results emerge leisure is countercyclical while nonmarket hours are acyclical hours spent in home production have declined significantly since the 1970s fluctuations in market output are a good measure of fluctuations in individual utility as long as home and market consumption are either extreme complements or extreme substitutes in the production of utility

tax and spend or spend and tax empirical evidence from greece spain portugal and ireland the paper examines empirically the relationship between government revenues and expenditures in four european countries greece spain ireland and portugal in relative terms all four may be considered as the poorest members of the european union yet they present a fairly diverse picture as far as their macroeconomic performance and fiscal position is concerned the empirical findings from cointegration and causality tests that are reported here indicate that in the case of greece and ireland tax and spending decisions are taken simultaneously by the fiscal authority the tax and spend hypothesis is supported in the case of spain while absence of any causal ordering between government expenditure and tax revenues has been established for portugal

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances