Tax or Spend, What Causes What: Taiwan’s Experience

Abstract

In this paper we tested the hypothesis of tax-and-spend, spend-and-tax, or fiscal synchronization_x000D_ for Taiwan using annual data covering the 1967 to 1999 period. Granger causality test results based on the corresponding vector error-correction models (ECM) suggest unidirectional causality running from government revenues to government expenditures, thus supporting the tax-and-spend hypothesis for Taiwan.