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Testing the Relationship between Government Spending and Revenue: Evidence from GCC Countries

Author/Editor: Fasano-Filho, Ugo | Wang, Qing
Authorized for Distribution: November 1, 2002
Electronic Access: Free Full Text (PDF file size is 771KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: The paper examines the direction of causality between total government expenditure and revenue in oil-dependent GCC countries by utilizing a cointegration and error-correction modeling framework, and by calculating a variance decomposition analysis. In addition, it presents impulse responses to shed light on the dynamic relation of expenditure to a revenue shock. The results confirm expectations that government spending follows oil revenue, suggesting a pro-cyclical expenditure policy to variations in oil revenue. To make budget expenditure less driven by revenue availability, the authorities could resort to a medium-term expenditure framework, so that expenditures can be planned and insulated from volatile short-term revenue availability.
 
Series: Working Paper No. 02/201
Subject(s): Government expenditures | Revenues | Fiscal policy | Cooperation Council for the Arab States of the Gulf
Author's keyword(s): Fiscal policy | GCC countries
 
English  
    Published:   November 1, 2002        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2002201   Pages:   27
    Price:   US$15.00
       
     
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