Government revenue and spending nexus in regional Indonesia: Causality approach

Main Article Content

Ratu Eva Febriani http://orcid.org/0000-0003-4449-9862 Roosemarina Anggraini Rambe http://orcid.org/0000-0001-5724-328X

Abstract

This study aims to test the hypothesis that explains the relationship between tax revenue and government spending in six Indonesian regions. Furthermore, the units of analysis were districts and cities in each region from 2006 to 2017, and a Granger panel causality approach was used. The results showed five experienced bidirectional causalities between tax revenues and local government spending out of the six regions, namely Java, Sumatra, Kalimantan, Sulawesi, and the Bali & Nusa Tenggara. Also, there was fiscal synchronisation in five regions, while the tax-spend hypothesis applies in the Papua & Maluku regions. Therefore, the local governments in these regions need to be careful in deciding actions related to increasing revenue. This can be achieved through the tax sector's optimisation and expenditure increment by encouraging public spending from the administration.

Article Details

How to Cite
FEBRIANI, Ratu Eva; RAMBE, Roosemarina Anggraini. Government revenue and spending nexus in regional Indonesia: Causality approach. Economics, Management and Sustainability, [S.l.], v. 7, n. 1, p. 34-42, may 2022. ISSN 2520-6303. Available at: <https://jems.sciview.net/index.php/jems/article/view/169>. Date accessed: 29 june 2022. doi: https://doi.org/10.14254/jems.2022.7-1.3.
Section
Articles

References

Afonso, A., & Rault, C. (2008). Bootsrap panel Granger-causality between government spending and revenue. WP 39/2008/DE/UECE Working Paper ISSN No 0874-4548.
Aisha, Z., & Khatoon, S. (2009). Government expenditure and tax revenue, causality and cointegration: The experience of Pakistan (1972-2007). Pakistan Development Review, 48(4), 951–959. https://doi.org/10.30541/v48i4iipp.951-959
Akram, V., & Rath, B. N. (2019). Is there any evidence of tax-and-spend, spend-and-tax or fiscal synchronisation from panel of Indian state? Applied Economics Letters, 26(18), 1544–1547. https://doi.org/10.1080/13504851.2019.1584363
Al-Zeaud, H. A. (2015). The causal relationship between government revenue and expenditure in Jordan. International Journal of Management and Business Research, 5(2), 117–127. https://doi.org/10.1515/ethemes-2014-0009
Apergis, N., Payne, J. E., & Saunoris, J. W. (2012). Tax-spend nexus in Greece: Are there asymmetries? Journal of Economic Studies, 39(3), 327–336. https://doi.org/10.1108/01443581211245900
Barro, R. . (1979). On the Determination of the Public Debt. Journal of Political Economy, 87(5), 940–971.
Buchanan, J. M., & Wagner, R. E. (1978). Dialogues Concerning Fiscal Religion. Journal of Monetary Economics, 4, 627–636.
Champita, M. (2016). Causality between Government Revenue and Expenditure: Empirical Evidence from Zambia. Zambia Social Science Journal, 6(1), 5.
Chang, T., & Chiang, G. (2009). Revisiting the government revenue-expenditure Nexus: Evidence from 15 OECD countries based on the panel data approach. Finance a Uver - Czech Journal of Economics and Finance, 59(2), 165–172.
Chang, T., Liu, W. R., & Caudill, S. B. (2002). Tax-and-spend, spend-and-tax, or fiscal synchronisation: New evidence for ten countries. Applied Economics, 34(12), 1553–1561. https://doi.org/10.1080/00036840110103265
Elyasi, Y., & Rahimi, M. (2012). The Causality between Government Revenue and Government Expenditure in Iran. International Journal of Economic Sciences and Applied Research, 5(1), 129–145. https://doi.org/10.2139/ssrn.1977987
Friedman, M. (1978). The Limitations of Tax Limitation. Policy Review, Summer, 7–14.
Gounder, N., Narayan, P. K., & Prasad, A. (2007). An empirical investigation of the relationship between government revenue and expenditure: The case of the Fiji Islands. International Journal of Social Economics, 34(3), 147–158. https://doi.org/10.1108/03068290710726711
Granger, C. W. (1969). Investigating causal relationship by econometris models and cross spectral methods. Econometrica, 424–438. https://doi.org/https://doi.org/10.2307/1912791
Hondroyiannis, G., & Papapetrou, E. (2001). An investigation of the public deficts and government spending relationship: Evidence for Greece. Public Choice, 107(1–2), 169–182. https://doi.org/10.1023/A:1010346400278
Husain, F., Qasim, M. A., Khalid, M., & Ghani, E. (2010). Relationship between federal government revenues and expenditures in Pakistan. Pakistan Development Review, 49(4), 641–649.
Irandoust, M. (2018). Government spending and revenues in Sweden 1722–2011: evidence from hidden cointegration. Empirica, 45(3), 543–557. https://doi.org/10.1007/s10663-017-9375-5
Jaén-García, M. (2019). Tax-spend, spend-tax, or fiscal synchronisation. A wavelet analysis. Applied Economics, 1–12. https://doi.org/10.1080/00036846.2019.1705238
Jibir, A., & Aluthge, C. (2019). Modelling the determinants of government expenditure in Nigeria. Cogent Economics and Finance, 7(1), 1–23. https://doi.org/10.1080/23322039.2019.1620154
Koren, S., & Stiassny, A. (1998). Tax and spend or spend and tax? An International Study. Journal of Policy Modeling, 20(2), 163–191. https://doi.org/10.1007/BF01384650
Lojanica, N. (2015). Government Expenditure and Government Revenue – The Causality on the Example of the Republic of Serbia. Management International Conference, January, 79–90.
Lopez, L., & Weber, S. (2017). Testing for Granger Causality in Panel Data. IRENE Working Paeper 17-03 Institute of Economic Research University of Neuchatel.
Magazzino, C. (2014). The Relationship between revenue and expenditure in the ASEAN countries. East Asia, 31(3), 203–221. https://doi.org/10.1007/s12140-014-9211-5
Mehrara, M., Pahlavani, M., & Elyasi, Y. (2011). Government revenue and government expenditure nexus in Asian countries : Panel cointegration and ausality. International Journal of Business and Social Science, 2(7), 199–207.
Musgrave, R. (1966). Principles of Budget Determination. In H. Cameron & W. Henderson (Eds.), Public Finance Selected Readings. Random House.
Narayan, P. K., & Narayan, S. (2006). Government revenue and government expenditure nexus: Evidence from developing countries. Applied Economics, 38(3), 285–291. https://doi.org/10.1080/00036840500369209
Peacock, A. T., & Wiseman, J. (1979). Approaches to the analysis of government expenditure growth. Public Finance Review, 7(1), 3–23. https://doi.org/10.1177/109114217900700101
Rahman, S. M. ., & Wadud, M. (2014). Tax and spend, spend and tax, fiscal synchronisation of fiscal neutrality: evidence from Bangladesh. The International Journal of Applied Economics and Finance, 8(3), 98–108. https://doi.org/10.3923/ijaef.2014.98.108
Raza, S. A., Hassan, S. Z., & Sharif, A. (2019). Asymmetric relationship between government revenues and expenditures in a developing economy: evidence from a non-linear model. Global Business Review, 20(5), 1179–1195. https://doi.org/10.1177/0972150919846800
Richter, C., & Dimitrios, P. (2013). Tax and spend, spend and tax, fiscal synchronisation or institutional separation? Examining the case of Greece. Romanian Journal of Fiscal Policy, 4(2), 1–17.
Samal, A. (2017). Tax and Spend, Spend and Tax, or Fiscal Synchronisation in India: Evidence from ARDL Bound Testing Approach. The Empirical Economic Letters, 16(8), 773–782.
Saunoris, J. W. (2015). The Dynamics of the Revenue–Expenditure Nexus: Evidence from US State Government Finances. Public Finance Review, 43(1), 108–134. https://doi.org/10.1177/1091142113515051
Saunoris, J. W., & Payne, J. E. (2010). Tax more or spend less? Asymmetries in the UK revenue-expenditure nexus. Journal of Policy Modeling, 32(4), 478–487. https://doi.org/10.1016/j.jpolmod.2010.05.012
Tashevska, B., Trenovski, B., & Trpkova - Nestorovska, M. (2020). The Government Revenue–Expenditure Nexus in Southeast Europe: A Bootstrap Panel Granger-Causality Approach. Eastern European Economics, 58(4), 309–326. https://doi.org/10.1080/00128775.2020.1724156
Westerlund, J., Mahdavi, S., & Firoozi, F. (2011). The tax-spending nexus: Evidence from a panel of US state-local governments. Economic Modelling, 28(3), 885–890. https://doi.org/10.1016/j.econmod.2010.10.016
Zagler, M., & Durnecker, G. (2003). Fiscal Policy and Economic Growth. Journal of Economic Surveys, 17, 397–422.
Zapf, M., & Payne, J. E. (2009). Asymmetric modelling of the revenue-expenditure nexus: Evidence from aggregate state and local government in the US. Applied Economics Letters, 16(9), 871–876. https://doi.org/10.1080/13504850701222095