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Fabricio Linhares and Glauber Nojosa
''Changes in the tax-spend nexus: Evidence from selected European countries''
( 2020, Vol. 40 No.4 )
This study assesses the tax-spend nexus in Germany, the United Kingdom (UK), France, Italy and Spain using quarterly data for the period 1995–2019. Different from previous studies, we test for changes in the causality links between government expenditures and revenues because the recent economic crisis and political changes in these countries may have shifted their tax-spend nexus. Based on the recursive rolling test developed by Shi et al. (2018), we found that the direction of causality in the tax-spend nexus for these countries significantly changed after the 2008 crisis and a series of recovery and stability policies implemented over 2010–2012. While there are several periods before and during the crisis where institutional separation hypothesis prevailed, the after-crisis data support uninterrupted causality links between revenues and expenditures in all countries: tax-and-spend in Germany, the UK and Italy; spend-and-tax in France; and fiscal synchronization in Spain.
Keywords: tax-spend nexus, fiscal policy, VAR model, Granger causality, structural changes
JEL: C4 - Econometric and Statistical Methods: Special Topics
H6 - National Budget, Deficit, and Debt: General
Manuscript Received : May 28 2020 Manuscript Accepted : Nov 24 2020

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