Abstract
The aim of this contribution is to discriminate between the rivallingspend and tax andtax and spend hypotheses in order to check empirically the relationship between government spending and taxation decisions in Austria. For that purpose, the authors estimate a tri-variate structural VAR Model of Austria's public sector that, besides expenditures and revenues, includes aggregate income as an additional variable. They implement impulse-response functions and frequency domain techniques in order to identify the causal relation between government outlays and receipts. The budget making process is interpreted as an error correction model which allows to estimate to what extent revenues and expenditures are adjusted whenever the government sees its long run budget constraint violate. The empirical findings strongly support the spend and tax view that budget decision-making is significantly dominated by the expenditure side in Austria.
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We are gratefully indebted to Peter Weiss and three anonymous referees for many valuable comments and suggestion.
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Koren, S., Stiassny, A. Tax and spend or spend and tax? An empirical investigation for Austria. Empirica 22, 127–149 (1995). https://doi.org/10.1007/BF01384650
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DOI: https://doi.org/10.1007/BF01384650