The Relationship between Government Spending and Revenue: Nonlinear Bounds Testing Approach (NARDL)

Abstract

This paper examines the relationship between the central government spending (excluding interest payments) and revenue by means of Nonlinear Bounds Testing approach for 1998:Q1-2016:Q4 period. This approach enables us to make a distinction between the positive and negative shocks. Our empirical findings indicate that a positive change in the government spending has a positive impact on the revenue while the positive (negative) changes in the revenue lead to an increase (decrease) in the government spending in the long run. This supports the presence of fiscal synchronization hypothesis in Turkey. Moreover, it seems that there exists an asymmetric effect of changes in the revenue on the government spending in the long run.

The Government Spending-Revenue Nexus in CEE Countries: Some Evidence for Asymmetric Effects

“…This approach posits a twoway relationship between government spending and revenue. Miller and Russek (1990) for the US, Chang and Chiang (2009) for OECD countries, Aslan and Tasdemir (2009) and Turan and Karakas (2018) for Turkey, Vamvoukas (2012) for the European Monetary Union, Paleologou (2013) for Germany and Sweden and Irandoust (2017) for Sweden support the fiscal synchronization hypothesis.…”