FRBM Act, 2003 to check the deteriorating fiscal situation. Fiscal Responsibility and Budget Management (FRBM) Act was introduced in 2003 in order to ensure prudent fiscal management, macroeconomic stability, coordination between fiscal and monetary policy, and transparency in fiscal situation of the Government. The FRBM Act is a set of fiscal rule that specifies a cap on fiscal deficit at 3% of the GDP (GSDP for States) with zero revenue deficit. It has also put a ceiling on both debt and interest payment ratio. The entire objective is to contain expenditure of both Union and State Government to operate within their means. FRBM Act provides a legal institutional framework for fiscal consolidation. It is now mandatory for both the Central and State governments to take measures to reduce fiscal deficit, eliminate revenue deficit and generate revenue surplus in the subsequent years.
Note that we have formed a money circulation equation in Miura . The pioneer of the equation is Mária Augustinovics in Hungary 8 , and the current author showed its modification in that paper. Both expenditure and revenue have been derived as a solution of the equation. Therefore, it is possible to obtain a relational formula between expenditure and revenue of the same agent by using those solutions. However, since the equation is formed with consideration to the whole money circulation, the formula mixes two flows and so cannot express one relationship independently. For the quantification of expenditure reflux, it is not suitable to use a solution of the money circulation equation. 9
This study determines the causal relationship between the expenditure and revenue of government in the case of Romania by using the autoregressive distributive lag approach to cointegration, variance decomposition and rolling regression method. The results indicate that bidirectional long run relationship exist between expenditure and revenue of government. The variance decomposition method suggests government revenue shock has more sharply impact on the government expenditure as compared to the shock in government expenditure and response of government revenue collection.
The second column presents results for Augmented Dickey and Fuller (1979) test; the third one for Elliott, Rothenberg and Stock (1992) test; the fourth col- umn contains results for Phillips and Perron (1988) test; at last, in the fifth col- umn there are results for Kwiatkowski, Phillips, Schmidt and Shin (1992) test. Here, results are contradictory only for the period from the Unification to the WWI. In fact, public expenditure seems to be trend-stationary, while for public revenue parametric and non-parametric tests disagree. Since the latter are more robust, we conclude for non-stationary of the series. While, for the others two pe- riods both variables should be considered as clearly non-stationary.
The growing disparity between revenue and expenditure in many countries has been a source of concern to many economists, analysts and researchers. Such fiscal imbalances with the attendant adverse effects on economies have provoked intensive research on the causes and effects of such disparities, resulting to four alternative hypotheses relating to the relationship between government expenditure and revenue. The hypotheses are; the revenue-and-spend hypothesis, the spend-and- revenue hypothesis, the fiscal synchronization hypothesis or the fiscal neutrality hypothesis and the institutional separation hypothesis. In other to test the validity of these hypotheses, many authors have employed different methodologies, and their results have shown conflicting outcomes as shown in the literature. The main objective of this study is to ascertain the direction of causality between the disaggregated values of government revenue and expenditure in Nigeria by deploying a robust econometric methodology. The result would assist policy makers to recognize the source(s) of any fiscal imbalance that might exist and consequently, direct efforts to developing suitable strategies for a sound fiscal framework.
This paper examines causal relationship between government revenue and government expenditure by using quarterly data from 2000 to 2017 period. Johansen (1991; 1995) cointegration test suggests that there is a no long- run equilibrium relationship between government expenditure and government revenue. Further, Granger causality test based on the estimated VAR indicates government spending is unidirectional and significantly granger-cause revenue in the short run. These results suggest that tax-spend, fiscal synchronization and fiscal neutrality hypotheses are rejected in favour of the spend-and-tax hypothesis in case of Tanzania, meaning that the increase of government expenditure in Tanzania, dictates an increase of revenue in a short run. This could be explained by the current budget trend whereby revenue collections have been increasing concurrently with the expenditure increase due to the ongoing efforts of tax administration measures, including the use of electronic systems by MDAs such as Electronic Fiscal Devices and strengthening Government e- Payment Gateway System. In other words, there is a room for more revenue increase as the Government increases expenditure. This is evidenced by consistent increase of domestic revenue. However, inadequate revenue collection coupled with disproportionate increase in expenditure has continuously resulted in the fiscal deficits, which the Government has not been able to fully finance. Besides, the trend shows that inflows from the foreign sources such as grants and non-concessional borrowing have continued to decline. This calls for a wise expenditure based policies that would not jeopardise fiscal discipline. Importantly, government expenditure should be directed towards growth enhancing categories such as infrastructure, research and development, education, and health. On the other side of the coin, the revenue – expenditure disparities can be reduced by improving revenue based policies that would tap the available revenue potentials.
Nigeria is one of the major counties in Africa with great human and material resources that can guarantee sustainable economic growth and development. The country land mass is 923, 773km 2 with a population of over 160 million people of diverse cultural background. The major economic activities of the country include agriculture and industrialization. Crude oil is a key source of revenue to the Government. Secondary data on Gross Domestic Product (GDP), Government capital and recurrent expenditure, and different sources of Government revenue which are Oil- Revenue, Non-oil Revenue, Federation Account and Federal retained Revenue were extracted from the publication of Central Bank of Nigeria for the year 1981 to 2011. The methodology adopted in this study is that of linear regression model in which GDP (a measure of economic growth) is seen as a function of Government expenditure and the different sources of revenue. Thus, the model is of the form:
The chart reflects where and when the deficit has a bad impact on the economy.In 2008 – 2009, the expenditure was 21.8% of the GDP while the revenue was 22%. This shock during the economic crisis on 2008 shows some vulnerability in the system expenditure ratio of the GDP jumped from 19% in 2007 – 2008 to reach 22% in 2008 – 2009.A 3% jump in one year means the deficit will increase in cash deficit from -4.5% in 2008 to -6% in 2009, a nearly 2% increase. The fall in the global financial system and the negative effect on the Malaysian market was not enough to hurt the market drastically, as in the following years both expenditure and revenues went stable and the deficit reflect that in the span of 2010 – 2013a near -5% deficit with some tending to be even close to -4.5% at the end of 2013.
variable is statistically significant in explaining the dependent variable. From the table it shows that F-statistics is 25.16119 and Pros (F-statistics is 0.00000. we therefore reject the null hypothesis and accept the alternative hypothesis. This is because it is greater than the critical values of 2.57 and 3.79 at 1% and 5% respectively. This implies that the model under this study is statistically significantly difference from zero. In other words, the explanatory variables jointly considered are significantly important in explaining variation in the dependent variable real gross domestic product. But Durbin Watson statistic value of 2.47 revealed that there is no autocorrelation. When considered the statistical significant of each variable from the table above we can see that primary school enrolment and post primary school enrolment are individually statistically significant at 5% while oil revenue and tertiary school enrolment are individually statistically significant at 10%.A unit increase in total health expenditure will increase real gross domestic product by six percent .While a unit increase in oil revenue will increase Real GDP by 1.4 percent. As soon as the oil Revenue increases by a unit, primary school enrolment and Tertiary School enrolment will reduced by 344% and 119% respectively and by implication the oil revenue surplus has induced people to engage in social vices such as bunkering, kidnapping there by making them to be unproductive.
The paper used to analyze the co-integration and causality between the different tax forms and government spending, yearly data from the DataStream provided by the Malaysian Bureau of Statistics. The sample used for study is from the period 1970 to 2013 with 43 observations on each variable. The variables under study are Direct Tax Revenues (DTAX), Indirect Tax Revenues (IDTAX), Non-Tax Revenues (NONTAX) and Government Spending (SPENDING). The variables are transformed into Log form and Differentiated Form to further the study. We used Johansen co-integration test to discover if the variables are theoretically related. We also used Vector Error Correction Model (VECM) to differentiate the exogenous variable from the endogenous. The extent of endogeneity and exogeneity was further unveiled by VDC vector decomposition method. Finally, Long-run structural modeling was used to figure it out the relationship between Government Spending and the types of Government Revenue, while taking arbitrary Government spending as dependent variable. The reason is that we would like to find out the impact of the government revenues types on Government Spending.
Oates’s empirical studies were replicated by many authors in different national or international studies, covering different samples and time periods, using different measures for decentralization and government size and different estimation techniques. For instance, focusing on the US experience, Nelson (1986) provided some evidence that the less fragmented countries (those with smaller number of sub-state government units) have larger state government sectors while Forbes and Zampelli (1989) were not able to provide support to the Leviathan hypothesis. Although there is no firm consensus about the single best measure of government size, expenditure-based measures may be considered superior versus revenue-based measures, since government expenditures could be financed not only by the regular sources (taxes and non-tax revenues) but also by other sources, such as debt creation, money creation and inflation, etc. Therefore, unlike the previous empirical studies, Marlow (1988) and Joulfaian and Marlow (1991) used the expenditure-based measure of decentralization and government size and provided evidence that the higher level of decentralization leads to smaller general government. The earlier studies that empirically tested the relationship between fiscal decentralization and government size relied on local government revenue and expenditure measures regardless whether local governments have discretion over their revenues or expenditures. On the other hand, as suggested by Rodden (2003), in most countries fiscal decentralization seems to have occurred almost exclusively through increased intergovernmental grants and shared revenues rather than through the devolution of expenditure and tax authority. Therefore, in the empirical studies that followed, many authors started to make a distinction between expenditure and revenue based decentralization and the size of vertical fiscal imbalance, measured by intergovernmental grants. Grossman (1989) underlined the role of intergovernmental grants in increasing government size, through concentrating taxing power at the central level of government and weakening the tax competition and fiscal discipline of local governments for financing their expenditures. Working with the same sample as Marlow (1988), Grossman (1989) empirically confirmed that the higher federal grants to state and local government the larger the size of the government. Similarly, Shadbegian (1999), too, supported the Leviathan hypothesis.
The Table gives very important information on the relative share of revenue and capital expenditure in total expenditure of State during the period 2006-17. An overview of the Table clearly shows gradually a rising trend in the revenue receipts and conversely a declining trend in capital expenditure which is a cause of concern. The purpose of Capital Expenditure is to enhance the capacity of the economy to produce goods and services through public investment in infrastructure like roads, bridges, power generation and distribution capacity, irrigation networks, transport, sewerage, water supply, education, health, sports facilities, etc. In fact, Capital outlays must increase constantly in order to meet the growing infrastructure needs of a growing State like Punjab that spur development, increase consumption and thereby lead to greater tax Revenue for the State and a better quality of living for the citizens. 5
Budget credibility, the ability of governments to accurately forecast the macro-fiscal variables, is crucial for effective Public Finance Management (PFM). Fiscal marksmanship analysis captures the extent of errors in the budgetary forecasting. The fiscal rules can determine fiscal marksmanship, as effective fiscal consolidation procedure affects the fiscal behaviour of the states in conducting the budgetary forecasts. Against this backdrop, applying Theil’s technique, w e analyse the fiscal forecasting errors for 28 States (except Telengana) in India for the period 2011-12 to 2015-16 . There is a heterogeneity in the magnitude of errors across subnational governments in India. The forecast errors in revenue receipts have been greater than revenueexpenditure. Within revenue receipts, the errors are pronounced more significantly in grants component. Within expenditure budgets, the errors in capital spending are found greater than revenue spending in all the States. Partitioning the sources of errors, we identified that the errors were more broadly random than systematic bias, except for a few crucial macro-fiscal variables where improving the forecasting techniques can provide better estimates.
As borrowings have increased over the years, the Government is also borrowing to repay old debts as is evident from Table. In the past ten years, the Government has used borrowings as a source of funds to meet a part of its committed Expenditure, which is not a healthy sign. Borrowing by the Government is not undesirable. Borrowings must be used largely for Capital Expenditure on resource generating assets as well as on social infrastructure for the debt to be sustainable in the long term. However, the trend of borrowings to finance present consumption represented by RevenueExpenditure is unsustainable in the long term as it does not produce future streams of income and still needs to be repaid.
From the Table 1, it is clear that in the year 2011-12, the expenditure on other expenses was at Rs.16942.60 million with contribution of 7.23 % to total revenueexpenditure. Finally in the year 2016-17, this expenditure has reached to Rs.16405.50 million with 6.36% contribution to total revenueexpenditure. It is almost nearer to the aggregate value of entire study period, i.e., Rs.16359.57 million. From the Table 1, it is clear that the next item of revenueexpenditure of Air India is expenses on prior period adjustments. Due to the reason of currency exchange variations and insurance dues and outstanding employee benefits etc.. In the year 2011-12, the value of this expenditure was observed at Rs.1254.20 million with 0.53% contribution to total revenueexpenditure. This value is finally reached to Rs.-3897.90 million with -1.51% to overall revenueexpenditure in the year 2016-17. This is too high than aggregate of entire study period, i.e., Rs.-421.48 million.
The paper examines the fiscal decentralization in rural water supply sector in MP (Madhya Pradesh), covering the period from 2001-02 to 2017-18. Three types of examinations have been made in the study. The first is to find out devolvable funds in rural water supply sector, and its percentage in total rural water supply expenditure in the state. The second is to find out devolved funds in rural water supply sector and its percentage in total rural water supply expenditure, devolvable funds and plan rural water supply expenditure in the state. Finding indicates that share of devolvable funds in rural water supply expenditure is increasing continuously. All devolvable funds are revenueexpenditure; it means that state government is decreasing their funds for capital expenditure and not increasing its assets in rural water supply sector. On an average during 2001-02 to 2017-18 share of devolved funds into rural water supply expenditure is just 9.5 percent. Planning Commission suggested 30-40 percent of a state’s plan can be devolved to local bodies. However, on an average during 2001-02 through 2016-17, only 9.5 percent of total rural water supply budget, and only 12 percent of total planned funds of rural water supply was devolved. It has been seen in the analysis that rural water supply, despite being an important area of functional devolution; managed a financial devolution of barely one third of the lower limit of devolution prescribed by the planning commission. In the last five years during 2013-14 to 2017-18 annual growth rate of devolved funds in total rural water supply expenditure is negative (-30 percent per anum). Keywords: Decentralisation, Devolvable Funds, Devolved Funds, Rural Water Supply, Madhya Pradesh.