인도·남아시아

This study analyzes the direction of causal linkage between Government Expenditure (GE) and Government Revenue (GR) in Bangladesh applying Johansen’s cointegration and Error Correction Mechanism (ECM) covering the period from 1973-2013. Before proceeding to check cointegration and causality, we apply augmented Dickey-Fuller and and Phillips-Perron (PP) unit root test to assess the time series properties of the variables. The results of ADF and Phillips-Perron (PP) unit root test indicate that both time-series data is nonstationary at their levels but stationary at their first differences. Results of the Johansen cointegration test show that a significant long-run equilibrium exists between GE and GR. Results from Granger causality test based on Vector Error Correction Models (VECM) suggest unidirectional causality from revenue to expenditure in the long run supporting Tax-and-spend hypothesis.