The Government Revenue–Expenditure Nexus in Southeast Europe: A Bootstrap Panel Granger-Causality Approach

ABSTRACT

This article presents one of the first attempts to explore the relationship between government revenues and government expenditures in six Southeast European countries for the period 1999–2015, employing a bootstrap panel Granger-causality approach, which provides insight into the nature and direction of their relationship in each country. The empirical results indicate a unidirectional relationship from government revenues to government expenditures in five countries (Albania, Bulgaria, Croatia, Serbia, and Slovenia), confirming the revenue-expenditure or tax-spend hypothesis. The findings offer support for the fiscal synchronization hypothesis only in Macedonia, where bidirectional causality between government revenues and government expenditures was found.

KEYWORDS:

• Bootstrap panel Granger causality
• government expenditures
• government revenues
• Southeast European countries

JEL Classification:

• C33
• E62
• H20
• H50

Acknowledgments

The authors would like to thank the editor Josef Brada and the two anonymous reviewers for their helpful comments and time spent in reading this article. The authors also thank Mihai Mutascu for his support and suggestions for the empirical analysis. All errors and omissions in this article are our own.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The EU-10 area refers to Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Portugal, and United Kingdom.

2. At the level of state and local government, Ram (1988) confirmed the spend-tax hypothesis in the US. Westerlund, Mahdavi, and Firoozi (2011) confirmed the tax-spend relationship and showed that institutional frameworks limit discretionary fiscal policies.