Relationship between Government Spending and Revenue: Evidence from Oil Exporting Countries

This Paper investigates the causality and the long-run relationships between government expenditure and government revenue in oil exporting countries during 2000-2009 by using PVAR framework. Since the major share of total revenue in these countries is related to the oil revenue, hence the oil revenue is applied as proxy of total revenue. The findings reveal that there is a positive unidirectional long-run relationship between oil revenue and government expenditures, as it is expected. What’s more, the findings show that one percent increase in oil revenue induces the increase of government expenditure to 1.16 percent. In other words, the “revenue-and-spend” hypothesis is confirmed in oil exporting countries. Keywords-Government Expenditure; Government Revenue; Oil Exporting Countries; P-VAR