The Causal Relationship Between Government Revenue And Expenditure In Serbia

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Abstract

This paper studies the causal relationship between government revenue and government expenditure in Serbia, using quarterly data for the 2003 (Q1) - 2012 (Q4) period. In addition to the theoretical arguments regarding this causality, extensive empirical literature is also available. The problem of the fiscal deficit has been a significant burden for the economic system of Serbia for a number of years. Therefore, the relationship between government revenue and government expenditure represents an important issue that should be studied empirically in order to draw certain conclusions. In this paper, the Toda-Yamamoto long-run non-causality method is used to determine whether the causal relationship between government revenue and government expenditure exists in Serbia. The application of this method confirms the existence of a unidirectional (one-way) causality running from government expenditure to government revenue, which means that government expenditure Granger-causes government revenue.

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