Abstract:
The great debate on whether fiscal revenue and expenditure should follow an “revenue–expenditure” or an “expenditure–revenue” nexus has been taking place in China more than 2,000 years ago. However, in order to reduce fiscal deficit, cut down government debt and maintain fiscal sustainability, it was not until two decades earlier that the international public finance field has started paying close attention to the relationship between fiscal revenue and expenditure. This paper outlines major literature on causality between fiscal revenue and expenditure, associated econometric approaches, and empirical studies within the context of high, medium and low income countries, and discusses upon various hypotheses and their linkage with government deficit reduction.
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