Testing the Relationship between Government Spending and Revenue: Evidence from GCC Countries

28 Pages Posted: 14 Feb 2006

See all articles by Ugo Fasano

Ugo Fasano

International Monetary Fund (IMF)

Qing Wang

International Monetary Fund (IMF)

Date Written: November 2002

Abstract

The paper examines the direction of causality between total government expenditure and revenue in oil-dependent GCC countries by utilizing a cointegration and error-correction modeling framework, and by calculating a variance decomposition analysis. In addition, it presents impulse responses to shed light on the dynamic relation of expenditure to a revenue shock. The results confirm expectations that government spending follows oil revenue, suggesting a pro-cyclical expenditure policy to variations in oil revenue. To make budget expenditure less driven by revenue availability, the authorities could resort to a medium-term expenditure framework, so that expenditures can be planned and insulated from volatile short-term revenue availability.

Keywords: fiscal policy, GCC countries

JEL Classification: E62, H50, N15

Suggested Citation

Fasano, Ugo and Wang, Qing, Testing the Relationship between Government Spending and Revenue: Evidence from GCC Countries (November 2002). IMF Working Paper, Vol. , pp. 1-28, 2002. Available at SSRN: https://ssrn.com/abstract=880840

Ugo Fasano (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Qing Wang

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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