The causal and cointegration relationship between government revenue and government expenditure

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This study determines the causal relationship that exists between government revenue and government expenditure in South Africa. The study employed annual time series data from the year 1980 to 2015 taken from the South African Reserve Bank. The Johansen multivariate method was employed to test for co-integration and for causality the Vector Error Correction/Granger causality test was employed. The empirical results suggest that there is a long-run relation-ship between government revenue and government expenditure. The causality result suggests that there is no causality between government revenue and government expenditure in South Africa. Thus, policy makers in the short run should determine government revenue and government expenditure of South Africa independently when reducing the budget deficit.

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    • Table 1. Empirical studies that reviewed causality of government revenue – government expenditure in developed countries (summary)
    • Table 2. Empirical studies that reviewed causality of government revenue – government expenditure in developing countries (summary)
    • Table 3. Empirical studies that reviewed causality of government revenue – government expenditure in South Africa (summary)
    • Table 4. ADF and PP test results
    • Table 5. Lag order
    • Table 6. Trace and maximum Eigenvalue test results
    • Table 7. Long run relationship results
    • Table 8. Error Correction Model (ECM) results
    • Table 9. Causality test (VEC Granger causality)
    • Table 10. Diagnostics tests results