Revenue-Expenditure Nexus for India

This paper attempts to find out the inter-temporal relationship between government expenditures and revenues in India. It tries to find out if the variations in revenues cause variations in expenditures or the variation in expenditure cause variation in revenue. It also analyses the trend and composition of rising public expenditure in India. This paper has used vector error correction mechanism to find out the causality between the governments total expenditure and revenue receipt. The empirical analysis suggests long run causality from Government revenue receipts to Government total expenditure. It supports the tax-spend hypothesis that means over time, expenditure decisions are not made in isolation of revenue receipts.