The Revenues-Expenditures Nexus: Evidence from Local Government Data

27 Pages Posted: 16 Jul 2004

See all articles by Douglas Holtz-Eakin

Douglas Holtz-Eakin

Syracuse University; National Bureau of Economic Research (NBER)

Whitney K. Newey

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 1987

Abstract

This paper examines the intertemporal linkages between local government expenditures and revenues. In the terminology that has become standard in the literature on vector autoregression analysis, the issue is whether revenues Granger-cause expenditures, or expenditures Granger-cause revenues. The main results that emerge from an analysis of fiscal data from 171 municipal governments over the period 1972-1980 are that: 1) one or two years are sufficient to summarize the relevant dynamic interrelationships; 2) there are important intertemporal linkages between expenditures, taxes and grants; and 3) past revenues help predict current expenditures, but past expenditures do not alter the future path of revenues. This last finding is contrary to results that have emerged from previous analyses of federal fiscal data, and hence suggests the need for additional research on the differences in the processes generating local and federal decisions.

Suggested Citation

Holtz-Eakin, Douglas and Newey, Whitney K. and Rosen, Harvey S., The Revenues-Expenditures Nexus: Evidence from Local Government Data (March 1987). NBER Working Paper No. w2180, Available at SSRN: https://ssrn.com/abstract=272674

Douglas Holtz-Eakin (Contact Author)

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Whitney K. Newey

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Harvey S. Rosen

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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