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Economic Change and Restructuring

Erschienen in:

14.05.2020

The relationship between tax revenue, government expenditure, and economic growth in G7 countries: new evidence from time and frequency domain approaches

verfasst von: Temel Gurdal, Mucahit Aydin, Veysel Inal

Erschienen in: Economic Change and Restructuring | Ausgabe 2/2021

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Abstract

In this study, the relationship between tax revenue, government expenditure, and economic growth has been examined for Canada, France, Germany, Italy, Japan, UK, and the USA—the G7 countries using annual data from 1980 to 2016. The study used two different panel causality approaches in order to make a comparison. According to the time domain panel causality test results, there are a bidirectional causality between economic growth and government expenditure but unidirectional causality between tax revenue and government expenditure. Moreover, there is no causal relationship between economic growth and tax revenue. On the other hand, frequency domain causality results show that there are a bidirectional short- and long-run causality between economic growth and tax revenue, and long-run causality between economic growth and government expenditure. The main finding is that the taxation policies to be implemented on the basis of the economic conjuncture of G7 countries are a powerful financial tool, with the potential to serve the economic objectives to be achieved.

Vorheriger Artikel On the linkage between government expenditure and output: empirics of the Keynesian view versus Wagner’s law

Nächster Artikel A DEA model for measuring financial intermediation

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The ADF and PP unit root tests results are reported in Tables 11-13 (in Appendix).

Table 3

Results of Hadri and Kurozumi unit root test

Variables	Level		First differences
Variables	\(Z_{A}^{{{\text{SPC}}}}\)	\(Z_{A}^{{{\text{LA}}}}\)	\(Z_{A}^{{{\text{SPC}}}}\)	\(Z_{A}^{{{\text{LA}}}}\)
lngdp	0.691 (0.244)	0.372 (0.354)	–	–
lntax	−1.643 (0.948)	-1.689 (0.954)	–	–
lngov	0.231 (0.408)	4.133 (0.000)*	–	0.467 (0.320)

*Indicates the rejection of the null hypothesis at the 1% significance level. The null hypothesis of this test is stationary. P values are in parentheses

Table 4

Time domain causality results (lngov-lngdp)

Countries	H₀: lngov ↛ lngdp			H₀: lngdp ↛ lngov
Countries	ki	wi	pi	ki	wi	pi
Canada	3	12.634*	0.006	3	2.976	0.395
France	1	0.002	0.969	1	0.012	0.913
Germany	2	1.822	0.402	2	6.484**	0.039
Italy	2	0.280	0.869	2	7.045**	0.030
Japan	2	7.539**	0.023	2	2.513	0.285
UK	2	1.729	0.421	2	5.293***	0.071
USA	3	2.764	0.430	3	27.033*	0.000
Panel
Fisher test statistic		23.993***			47.489*
Bootstrap critical values	1%	35.533			33.694
	5%	27.884			26.497
	10%	23.530			23.314

*, ** and *** indicate the rejection of the null hypothesis at the 1%, 5%, and 10% significance levels, respectively

The feedback hypothesis is used in the literature for bidirectional relations between the two variables.

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Titel: The relationship between tax revenue, government expenditure, and economic growth in G7 countries: new evidence from time and frequency domain approaches
verfasst von: Temel Gurdal
Mucahit Aydin
Veysel Inal
Publikationsdatum: 14.05.2020
Verlag: Springer US
Erschienen in: Economic Change and Restructuring / Ausgabe 2/2021
Print ISSN: 1573-9414
Elektronische ISSN: 1574-0277
DOI: https://doi.org/10.1007/s10644-020-09280-x

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