The Causality between Government Revenue and Government Expenditure in Iran

17 Pages Posted: 1 Jan 2012  

Yousef Elyasi

University of Sistan & Baluchestan, Faculty of Economics

Mohammad Rahimi

Bu-Ali Sina University - Faculty of Economics and Social Science

Date Written: November 1, 2011

Abstract

The causal relationship between government revenue and government expenditure is an important subject in public economics especially to the control of budget deficit. The purpose of this study is to investigate the relationship between government revenue and government expenditure in Iran by applying the bounds testing approach to cointegration. The results of the causality test show that there is a bidirectional causal relationship between government expenditure and revenues in both long run and short run. Therefore, the results of this paper are consistent with fiscal synchronization hypothesis. The policy implication of results suggests that because of existing interdependence relation between government expenditure and revenue, the government makes its expenditures and revenues decision simultaneously. Under this hypothesis, the fiscal authorities of Iran should try to increase revenues and decrease expenditure simultaneously to control the budget deficits.

Keywords: Government revenue/expenditure, Bounds testing approach, Granger Causality, ARDL

JEL Classification: C22, H10, H50

Suggested Citation

Elyasi, Yousef and Rahimi, Mohammad, The Causality between Government Revenue and Government Expenditure in Iran (November 1, 2011). Available at SSRN: https://ssrn.com/abstract=1977987 or http://dx.doi.org/10.2139/ssrn.1977987

Yousef Elyasi (Contact Author)

University of Sistan & Baluchestan, Faculty of Economics ( email )

Zahedan
Iran

Mohammad Rahimi

Bu-Ali Sina University - Faculty of Economics and Social Science ( email )

Hamedan
Iran

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