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Government Revenue - Expenditure Nexus in Lesotho: the Decline in SACU Revenue

DOI: 10.5923/j.economics.20120201.02

Keywords: GovernmentRevenue, Government Expenditure, Granger Causality Test

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Abstract:

The paper analyses the relationship between government revenue and expenditure in Lesotho using quarterly data for the period 1991 to 2009. We employ granger causality test, Johansen procedure and error correction model based granger causality test to ascertain whether there is unidirectional causality from taxation to revenue, unidirectional causality from spending to taxation, bidirectional causality or no causality between the two variables. The results indicate that there is unidirectional causality from revenue to expenditure which calls for urgent policy reforms given the eminent decline in Southern African Customs Union (SACU) revenue which accounts for 55 per cent of the total government revenue in Lesotho. In addition, the study finds that causality runs from revenue to recurrent expenditure while there is no causality between revenue and capital expenditure which suggests that more emphasis should be put on capital expenditure.

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