Testing the Relationship between Government Spending and Revenue: Evidence from GCC Countries

By Ugo Fasano, Qing Wang. Social Science Research Network, 2002

124 citations recorded by the source corpus.

The paper examines the direction of causality between total government expenditure and revenue in oil-dependent GCC countries by utilizing a cointegration and error-correction modeling framework, and by calculating a variance decomposition analysis. In addition, it presents impulse responses to shed light on the dynamic relation of expenditure to a revenue shock. The results confirm expectations that government spending follows oil revenue, suggesting a pro-cyclical expenditure policy to variations in oil revenue. To make budget expenditure less driven by revenue availability, the authorities could resort to a medium-term expenditure framework, so that expenditures can be planned and insulated from volatile short-term revenue availability.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/d6483a6ebdf54159cd8c1b9afc9a3d1fd5cb2921