Government Revenue and Government Expenditure Nexus in Asian Countries: Panel Cointegration and Causality
Mohsen Mehrara, Mosayeb Pahlavani, Yousef Elyasi

Abstract
The relationship between government revenue and government expenditure has been an important topic in public economics, given its relevance for policy especially with respect to the budget deficit. The purpose of this paper is to investigate the relationship between government revenue and government expenditure in 40 Asian countries for the period of 1995 to 2008. We include GDP as a control variable into the model. Data properties were analyzed to determine their stationarity using the LLC and IPS unit root tests which indicated that the series are I(1). We find a cointegration relationship between government revenue and government expenditure by applying Kao panel cointegration test. The causality tests indicate that there is a bidirectional causal relationship between government expenditure and revenues in both the long and the short run and Fiscal synchronization hypothesis is confirmed. The policy implication of the results suggests that there is interdependence between government expenditure and revenues. The government makes its expenditure and revenues decision simultaneously. Under this scenario the fiscal authorities of these countries with budget deficits should raise revenues and decrease spending simultaneously in order to control their budget deficits.

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