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BUDGET BALANCE THROUGH SPENDING CUTS OR TAX ADJUSTMENTS?
Author(s) -
Darrat Ali F.
Publication year - 2002
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1093/cep/20.3.221
Subject(s) - economics , deficit spending , debt , balance (ability) , interdependence , government spending , public spending , public economics , government (linguistics) , developing country , macroeconomics , economic policy , monetary economics , economic growth , welfare , market economy , political science , medicine , physical medicine and rehabilitation , linguistics , philosophy , politics , law
This article explores the causal (lead/lag) relation between government spending and taxation in two developing countries (Lebanon and Tunisia). Both countries have suffered from large budget deficit and/or national debt problems, particularly since the early 1990s. Empirical results deduced from a battery of tests suggest that decisions to spend and tax are significantly interdependent in both countries. Moreover, the evidence is consistent with the notion that raising taxes (working primarily through aroused public awareness) provokes spending cuts. Thus, higher taxes seem an optimal resolution to the deficit predicament in both countries.