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The intertemporal relation between government revenue and expenditure in the United Kingdom, 1750 to 2004
Applied Economics (2011)
  • John Thornton
  • Lusine Lusinyan, International Monetary Fund
Abstract
We examine the intertemporal relation between government revenue and expenditure in the UK during 1750 to 2004. We pay particular attention to long run trends by applying a battery of unit root and cointegration techniques to the data, and we use a modified Granger causality test on data spans organized around structural breaks in the series. The results suggest that, allowing for structural breaks, UK real revenue and spending are I(1) series and cointegrated and that Granger causality runs from government spending to revenue. As such, the ‘spend-tax’ hypothesis appears to best characterize the long run intertemporal relation between government revenue and spending in the UK.
Keywords
  • revenue-expenditure nexus; unit roots; cointegration; structural breaks; causality
Publication Date
January, 2011
Citation Information
John Thornton and Lusine Lusinyan. "The intertemporal relation between government revenue and expenditure in the United Kingdom, 1750 to 2004" Applied Economics (2011)
Available at: http://works.bepress.com/john_thornton/23/