Skip to main content

Advertisement

SpringerLink
Log in

Analyzing the causality between revenues and expenditures in Spanish municipalities and its policy implications

  • Original Paper
  • Published:
Economia Politica Aims and scope Submit manuscript

Abstract

This paper examines the causality between expenditure and revenues for Spanish municipalities after their division in four groups according to size given by number of inhabitants. The results based on Juodis, Karavias and Sarafidis test in the period 2011–2020 indicated that the bidirectional causality between revenues and expenditure is supported for three groups of municipalities (smaller than 5,001 inhabitants, from 5,001 to 20,000 people, from 20,001 to 50,000 inhabitants). The bidirectional causality in municipalities larger than 50,000 inhabitants is checked only for taxes and expenditure at 5% significance level. Large municipalities with more than half a million inhabitants could employ revenue-enhancing policies to overcome the budget deficit, while smaller municipalities promote fiscal synchronization and realize revenues and expenditures at the same time. The policy implications of results are discussed.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Afonso, A., & Rault, C. (2009). Spend and Tax: A Panel Data Investigation for the EU. Economics Bulletin, 29(4), 2542–2548.

    Google Scholar 

  • Aisha, Z., & Khatoon, S. (2009). Government expenditure and tax revenue, causality and cointegration: The experience of Pakistan (1972–2007). The Pakistan Development Review, 951–959.

  • Akcaglayan, A., & Kayiran, M. (2010). Public expenditures and revenues in Turkey: An investigation on causality. Journal of Economics and Administrative Sciences, 5(2), 129–146.

    Google Scholar 

  • Akram, V., & Rath, B. N. (2019). Is there any evidence of tax-and-spend, spend-and-tax or fiscal synchronization from panel of Indian state? Applied Economics Letters, 26(18), 1544–1547.

    Article  Google Scholar 

  • Aminu, A., & Raifu, I. A. (2018). Dynamic Nexus between Government Revenues and Expenditures in Nigeria: Evidence from Asymmetric Causality and Cointegration Methods. MPRA Paper No. 97880.

  • Anderson, W., Wallace, M. S., & Warner, J. T. (1986). Government spending and taxation: What causes what? Southern Economic Journal, 630–639.

  • Apergis, N., Payne, J. E., & Saunoris, J. W. (2012). Tax-spend nexus in Greece: Are there asymmetries? Journal of Economic Studies.

  • Aslan, M., & Taşdemir, M. (2009). Is fiscal synchronization hypothesis relevant for Turkey? Evidence from cointegration and causality tests with endogenous structural breaks. Journal of Money Investment and Banking, 12, 14–25.

    Google Scholar 

  • Babarinde, G. (2022). Fiscal neutrality hypothesis: An analysis of the Nigerian local government revenue and expenditure. Journal of Public Administration Finance and Law, 11(23), 119–130.

    Article  Google Scholar 

  • Baghestani, H., & McNown, R. (1994). Do revenues or expenditures respond to budgetary disequilibria? Southern Economic Journal, 311–322.

  • Barro, R. J. (1979). On the determination of the public debt. Journal of Political Economic, 81, 940–971.

    Article  Google Scholar 

  • Bolat, S. (2014). The relationship between government revenues and expenditures: Bootstrap panel granger causality analysis on European countries. Economic Research Guardian, 4(2), 2.

    Google Scholar 

  • Borge, L. E., Falch, T., & Tovmo, P. (2008). Public sector efficiency: The roles of political and budgetary institutions, fiscal capacity, and democratic participation. Public Choice, 136(3), 475–495.

    Article  Google Scholar 

  • Breitung, J., & Das, S. (2005). Panel unit root tests under cross-sectional dependence. Statistica Neerlandica, 59(4), 414–433.

    Article  Google Scholar 

  • Buchanan, J. M. (1975). Public finance and public choice. National Tax Journal, 28(4), 383–394.

    Article  Google Scholar 

  • Buchanan, J. M. (2014). Public finance in democratic process: Fiscal institutions and individual choice. UNC Press Books.

  • Buchanan, J., & Wagner, R. (1978). Dialogues concerning fiscal religion. Journal of Monetary Economics, 4, 627–636.

    Article  Google Scholar 

  • Carneiro, F. G., Faria, J. R., & Barry, B. S. (2005). Government revenues and expenditures in Guinea-Bissau: Causality and cointegration. Journal Economics Development, 30, 107–117.

    Google Scholar 

  • Champita, M. (2016). Causality between Government revenue and expenditure: Empirical evidence from Zambia. Zambia Social Science Journal, 6(1), 5.

    Google Scholar 

  • Chang, T., Liu, W. R., & Caudill, S. B. (2002). Tax-and-spend, spend-and-tax, or fiscal synchronization: New evidence for ten countries. Applied Economics, 34(12), 1553–1561.

    Article  Google Scholar 

  • Chudik, A., & Pesaran, M. H. (2013). Large panel data models with cross-sectional dependence: a survey. CESifo Working Paper, No. 4371.

  • Cifuentes-Faura, J., Benito, B., & Guillamón, M. D. (2022b). Factors influencing the structure of municipal taxation. Special reference to political corruption. Local Government Studies, 1–25.

  • Cifuentes-Faura, J., Simionescu, M., & Gavurova, B. (2022a). Determinants of local government deficit: Evidence from Spanish municipalities. Heliyon, 8(12).

  • Dahlberg, M., & Johansson, E. (1998). The revenues-expenditures nexus: Panel data evidence from Swedish municipalities. Applied Economics, 30(10), 1379–1386.

    Article  Google Scholar 

  • Dahlberg, M., & Johansson, E. (2000). An examination of the dynamic behaviour of local governments using GMM bootstrapping methods. Journal of Applied Econometrics, 15(4), 401–416.

    Article  Google Scholar 

  • Diks, C., & Wolski, M. (2016). Nonlinear granger causality: Guidelines for multivariate analysis. Journal of Applied Econometrics, 31(7), 1333–1351.

    Article  Google Scholar 

  • 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.

    Google Scholar 

  • Fasano, U., & Wang, Q. (2002). Testing the relationship between government spending and revenue: Evidence from GCC countries. IMF Working Paper.

  • Febriani, R. E., & Rambe, R. A. (2022). Government revenue and spending nexus in regional Indonesia: Causality approach. Economics Management and Sustainability, 7(1), 34–42.

    Article  Google Scholar 

  • Friedman, M. (1978). The limitations of tax limitation. Quadrant, 22(8), 22–24.

    Google Scholar 

  • Garcia, M. J. (2012). The revenues-expenditures nexus: A panel data analysis of Spain’s regions (running title: Tax-expenditure, expenditure-tax or fiscal synchronization). International Journal of Academic Research in Economics and Management Sciences, 1(1), 24.

    Google Scholar 

  • 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, 147–158.

    Article  Google Scholar 

  • Granger, C. W. (1988). Some recent development in a concept of causality. Journal of Econometrics, 39(1–2), 199–211.

    Article  Google Scholar 

  • Gurdal, T., Aydin, M., & Inal, V. (2021). The relationship between tax revenue, government expenditure, and economic growth in G7 countries: New evidence from time and frequency domain approaches. Economic Change and Restructuring, 54(2), 305–337.

    Article  Google Scholar 

  • Holtz-Eakin, D., Newey, W., & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica: Journal of the Econometric Society, 1371–1395.

  • Hoover, K. D., & Sheffrin, S. M. (1992). Causation, spending, and taxes: Sand in the sandbox or tax collector for the welfare state? The American Economic Review, 225–248.

  • Hussaini, A., Usman, M., Falgore, J. Y., Sani, S. S., Abubakar, I., & Adamu, K. (2021). An investigation of causal relationships between government revenue and expenditure in Nigeria, using Engle cointegration approach. FUDMA Journal of Sciences, 5(4), 222–228.

    Google Scholar 

  • Irandoust, M. (2018). Government spending and revenues in Sweden 1722–2011: Evidence from hidden cointegration. Empirica, 45(3), 543–557.

    Article  Google Scholar 

  • Jaén-García, M. (2017). Relación entre Los gastos e ingresos del gobierno en España, 1958–2014. Semestre Económico, 20(45), 25–50.

    Article  Google Scholar 

  • Jaén-García, M. (2020). Tax-spend, spend-tax, or fiscal synchronization. A wavelet analysis. Applied Economics, 52(28), 3023–3034.

    Article  Google Scholar 

  • Jibir, A., & Aluthge, C. (2019). Modelling the determinants of government expenditure in Nigeria. Cogent Economics & Finance.

  • Jiranyakul, K. (2022). Is the Thai government revenue-spending nexus asymmetric? Journal of the Asia Pacific Economy, 1–16.

  • Juodis, A., Karavias, Y., & Sarafidis, V. (2021). A homogeneous approach to testing for Granger non-causality in heterogeneous panels. Empirical Economics, 60(1), 93–112.

    Article  Google Scholar 

  • Kollias, C., & Makraydakis, S. (2000). Tax and spend or spend and Tax? Empirical evidence from Greece, Spain, Portugal, and Ireland. Applied Economics, 32, 533–546.

    Article  Google Scholar 

  • Kollias, C., & Paleologou, S. M. (2006). Fiscal policy in the European Union: Tax and spend, spend and tax, fiscal synchronisation or institutional separation? Journal of Economic Studies, 33(2), 108–120.

  • Krasnopeeva, N. (2023). Revenues and expenditures of Russian regional budgets: Granger causality analysis. Applied Econometrics, 70, 5–33.

    Article  Google Scholar 

  • Li, X. (2001). Government revenue, government expenditure, and temporal causality: Evidence from China. Applied Economics, 33(4), 485–497.

    Article  Google Scholar 

  • Lopez, L., & Weber, S. (2017). Testing for Granger causality in panel data. The Stata Journal, 17(4), 972–984.

    Article  Google Scholar 

  • Magazzino, C. (2014). The relationship between revenue and expenditure in the ASEAN countries. East Asia, 31(3), 203–221.

    Article  Google Scholar 

  • Makhlouf, A., & Dahmani, M. D. (2022). On the estimation of tax-spend debate in Algeria: Evidence from Nardl Modelling and Asymmetric Causality Test. The Journal of Developing Areas, 56(4), 169–192.

    Article  Google Scholar 

  • Manage, N., & Marlow, M. L. (1986). The causal relation between federal expenditures and receipts. Southern Economic Journal, 617–629.

  • Marlow, M. L., & Manage, N. (1987). Expenditures and receipts: Testing for causality in state and local government finances. Public Choice, 53(3), 243–255.

    Article  Google Scholar 

  • Mehrara, M., Pahlavani, M., & Elyasi, Y. (2011). Government revenue and government expenditure nexus in Asian countries: Panel cointegration and causality. International Journal of Business and Social Science, 2(7), 199–207.

    Google Scholar 

  • Miller, S. M., & Russek, F. S. (1990). Co-integration and error-correction models: The temporal causality between government taxes and spending. Southern Economic Journal, 221–229.

  • Musgrave, R. (1966). Principles of budget determination. In H. Cameron & W. Henderson (Eds.), Public Finance: Selected Economics Letters, 4, 237–239.

  • Mutascu, M. (2016). Government revenues and expenditures in the East European economies: A bootstrap panel granger causality approach. Eastern European Economics, 54(6), 489–502.

    Article  Google Scholar 

  • Narayan, P. K., & Narayan, S. (2006). Government revenue and government expenditure nexus: Evidence from developing countries. Applied Economics, 38(3), 285–291.

    Article  Google Scholar 

  • Obioma, E. C., & Ozughalu, U. M. (2014). An examination of the relationship between government revenue and government expenditure in Nigeria: Co-integration and causality approach. Central Bank of Nigeria, 48(2), 35.

    Google Scholar 

  • Payne, J. (2003). A survey of the international empirical evidence on the tax-spend debate. Public Finance Review, 31(3), 302–324.

    Article  Google Scholar 

  • Peacock, A. T., & Wiseman, J. (1979). Approaches to the analysis of government expenditure growth. Public Finance Quarterly, 7(1), 3–23.

  • Pesaran, M. H. (2015). Time series and panel data econometrics (p. 1104). Oxford University Press.

  • Pesaran, M. H., & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142(1), 50–93.

    Article  Google Scholar 

  • Phiri, A. (2019). Asymmetries in the revenue–expenditure nexus: New evidence from South Africa. Empirical Economics, 56(5), 1515–1547.

    Article  Google Scholar 

  • Prats Albentosa, M. A., & Rocamora Martí, A. M. (2018). Consolidación fiscal, un análisis empírico para España. Revista De Ciencias Sociales, 24(1), 9–21.

    Article  Google Scholar 

  • Ram, R. (1988). Additional evidence on causality between government revenue and government expenditure. Southern Economic Journal, 763–769.

  • Ramírez Cedillo, E. (2008). La política fiscal desde una perspectiva de crecimiento endógeno, equilibrio presupuestal y fluctuaciones de corto plazo. Problemas Del Desarrollo, 39(152), 113–137.

    Google Scholar 

  • Raymond, J. L., & González-Páramo, J. M. (1988). Déficit, impuestos y crecimiento del gasto público. Papeles De Economía Española, 33, 125–149.

    Google Scholar 

  • Rijoly, J. C. D., Sapulette, S. G., Latuamury, J., Usmany, A. E. M., & Limba, F. B. (2023). A cointegration and causal analysis of the Government revenue and expenditure relationship in Indonesia. Journal of Business & Banking, 12(2).

  • Sam, C. Y., McNown, R., & Goh, S. K. (2019). An augmented autoregressive distributed lag bounds test for cointegration. Economic Modelling, 80, 130–141.

    Article  Google Scholar 

  • Shojaie, A., & Fox, E. B. (2021). Granger causality: A review and recent advances. Annual Review of Statistics and Its Application, 9.

  • Simionescu, M., & Cifuentes-Faura, J. (2023). Public debt in the Spanish municipalities: Drivers and policy proposals. Evaluation Review, 0193841X231193465.

  • Tarschys, D. (1975). The growth of public expenditures nine modes of explanation. Scandinavian political studies.

  • 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.

    Article  Google Scholar 

  • Tellier, G. (2006). Public expenditures in Canadian provinces: An empirical study of politico-economic interactions. Public Choice, 126(3), 367–385.

    Article  Google Scholar 

  • Von Furstenberg, G., Green, R., & Jeong, J. (1986). Tax and spend, or spend and tax? Review of Economics and Statistics, 68(2), 179–188.

    Article  Google Scholar 

  • Von Furstenberg, G. M., Green, R. J., & Jeong, J. H. (1985). Have taxes led Government expenditures? The United States as a test case. Journal of Public Policy, 5, 321–348.

    Article  Google Scholar 

  • Yinusa, O. G., Aworinde, O. B., & Oseni, I. O. (2017). The revenue-expenditure nexus in Nigeria: Asymmetric cointegration approach. South-Eastern Europe Journal of Economics, 15(1).

  • 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.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. University of Bucharest, Institute for Economic Forecasting of the Romanian Academy, Bucharest, Romania

    Mihaela Simionescu

  2. Faculty of Economics and Business, University of Murcia, Murcia, Spain

    Javier Cifuentes-Faura

Authors
  1. Mihaela Simionescu
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Javier Cifuentes-Faura
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Javier Cifuentes-Faura.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Simionescu, M., Cifuentes-Faura, J. Analyzing the causality between revenues and expenditures in Spanish municipalities and its policy implications. Econ Polit 41, 25–45 (2024). https://doi.org/10.1007/s40888-024-00322-5

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s40888-024-00322-5

Keywords

Search

Navigation