Government Expenditures and Tax Revenues in the United States of America

Abstract

This study explores the time-frequency dependency between government expenditures and tax revenues by employing the wavelet coherence approach using data from the United States of America (USA) for the period of 1960Q2 to 2019Q3. The four leading concepts regarding the correlation between government expenditures and tax revenues are the tax-and-spend, spend-and-tax, fiscal synchronization and institutional separation hypotheses. Our results indicate that government expenditures lead to tax revenues in both the short and long run for specific time intervals as proposed by the spend-and-tax hypothesis.