Asymmetric Relationship Between Government Revenues and Expenditures in a Developing Economy: Evidence from a Non-linear Model

Abstract

Understanding the revenue–expenditure nexus is the core essence of this research in the Pakistani context. This research examines the non-linear relationship between government revenues and government expenditures during 1972–2014. The recently developed non-linear co-integration technique has been used along with the symmetry test. The result shows that the revenues and expenditures have co-integration and provide the evidence in favour of fiscal synchronization hypothesis in the budgetary process. Moreover, the finding also reveals that the relationship between these two fiscal elements is asymmetric and negative changes in revenues and expenditures have a greater impact than the positive ones. Furthermore, another important aspect that was revealed during the study was that the negative shocks in the revenues will lead towards the drastically large increase in the expenditure.

Government revenue and spending nexus in regional Indonesia: Causality approach

“…The results support the fiscal synchronisation hypothesis for the five regions and the tax spending for the Maluku and Papua regions. These are consistent with several studies conducted by Raza et al (2019), Irandoust (2018), Al-Zeaud (2015, Elyasi & Rahimi (2012), Chiang (2009), andGounder et al (2007). The proof of the fiscal synchronisation hypothesis can guide local governments in making policies related to the financial shortfall.…”

“…Other studies have also found the occurrence of the hypothesis in 40 Asian countries from during 1995-2008 (Mehrara et al, 2011), Iran from 1963 to 2007 with ECM (Elyasi & Rahimi, 2012), Jordan from in 1990-2011 with granger causality and VECM (Al-Zeaud, 2015). Furthermore, similar ‹ 37 › results were obtained in Pakistan from during 1972-2014 with the adopted non-linear ARDL method (Raza et al, 2019), Greece from the period 1833 to 2009 with the granger causality test method (Richter & Dimitrios, 2013), and Zambia, during the period 1980-2016 using the VAR method (Champita, 2016), as well as nine industrialised countries from 1953-1992 using the structural VAR model (Koren & Stiassny, 1998).…”

Sigma Convergence and VECM Approach in Explaining the Relationship among Macro Variables in Indonesia

“…In general, the findings of this study are in line with the findings of research conducted by Aidam (2018) and Raza et. al.…”

“…In contrast, Hasan and Kashmir (2016) identified a negative relationship in the short term. Furthermore, the relationship in the long-term of government expenditure and government revenue was also observed in Ghana (Aidam, 2018), and Pakistan (Raza et. al., 2019).…”

“…On the other hand, in the long-term, an increase in government expenditure provokes a decrease in government revenue (Aidam, 2018). The relationship between government revenue and government expenditure in Pakistan shows that government revenue and expenditure have a relationship and are proven to be mutually sustainable in the budgeting process (Raza et. al., 2019).…”