Government revenue and expenditure nexus in South Africa

Abstract

This paper investigates the nexus between government expenditure and government revenue in South Africa with in the framework of a vector autoregressive (VAR) approach. It uses the Hylleberg et al. (1990) method to test for seasonal unit roots and finds that government revenue and government expenditure have unit roots at all frequencies. The Johansen procedure test results reveal that these variables are cointegrated. It is further established that revenue and expenditure are linked bi-directionally by Granger causality in the long-run, while there is no evidence of Granger causality in the short-run in South Africa.