tailieunhanh - Tax revenue, expenditure, and economic growth: An analysis of long-run relationships

This paper employs the Granger causality test and finds that the linkage between tax revenue and spending is a bi-directional causal correlation. Furthermore, applying Persyn and Westerlund’s (2008) co-integration test allows for corroboration of existence of long-run cointegration linkages among outcome of economy and the three variables. | 4 Nguyen Phuong Lien & Su Dinh Thanh / Journal of Economic Development 24(3), 04-26 Tax revenue, expenditure, and economic growth: An analysis of long-run relationships NGUYEN PHUONG LIEN Hoa Sen University – phuongliennguyen0601@ SU DINH THANH University of Economics HCMC – dinhthanh@ ARTICLE INFO ABSTRACT Article history: Focusing on the investigation of “long-term” relationship between tax revenue, expenditure, and economic growth, this paper employs the Granger causality test and finds that the linkage between tax revenue and spending is a bi-directional causal correlation. Furthermore, applying Persyn and Westerlund’s (2008) co-integration test allows for corroboration of existence of long-run cointegration linkages among outcome of economy and the three variables. In addition, by adopting two-step system generalized method of moments (SGMM) for a dynamic panel of 82 developed and developing countries during 16-year period (2000–2015), this research demonstrates that the impact of tax revenue and spending is substantial and ambiguous, depending on different groups of economies. Received: Dec., 23, 2016 Received in revised form: May, 15, 2017 Accepted: June, 30, 2017 Keywords: long-term economic growth, co-integration test, tax revenue and expenditure. Nguyen Phuong Lien & Su Dinh Thanh / Journal of Economic Development 24(3), 04-26 5 1. Introduction It is widely known that any change in public policy can affect economic activities (Holley, 2011). During the last decades there have been numerous studies that investigated the linkage between public spending or tax revenue and economic growth. Dzhumashev (2014) revealed that relations among public finance, institutional quality, and economic growth are too ambiguous, which needs to be clarified. Furthermore, despite Barro’s (1990) argument that it is equal to public expenditure, tax revenue depends on public expenses. The question, therefore, is “how does tax revenue .