THE CAUSAL RELATIONSHIP BETWEEN GOVERNMENT EXPENDITURE AND TAX REVENUE IN BARBADOS

Author(s): Maynard, Tracy; Guy, Kester; (2009)

Created 27 Jul, 2009
Categories Working Papers
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Solving the budget deficit problem is a concern for many countries; some economists emphasized tax increases or tax cuts, while others favour spending cuts. This paper investigates the interrelationship between total government expenditure and total tax revenue in Barbados using both bivariate and multivariate cointegrating models. The technique of Granger Causality is also applied to determine the causal relationship in the multivariate model. The results from the multivariate error correction model suggest that government expenditure unidirectional Granger-cause changes in revenue.

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