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This paper uses
cointegration and Granger causality tests to examine the
relationship between government revenue and government expenditure
for seven African countries over the period 1980 to 2007. Using the
bounds testing approach to cointegration, our empirical results
suggest that for six out of the seven countries the two fiscal
variables are cointegrated. Our results on the direction of
causation support the fiscal synchronization hypothesis for Benin,
Burkina Faso, Niger, and Senegal in the long-run and for Côte
d’Ivoire and Mali in both the short- and long-run. Burkina Faso and
Niger are in conformity with the tax-and-spend hypothesis in the
short-run while Senegal and Togo follow a spend-and-tax scheme. Our
findings suggest that, to control their budget deficits, Burkina
Faso, Mali, and Niger should look for ways to raise revenues, while
policymakers in Benin, Côte d’Ivoire, and Senegal should curtail
expenditures. Togo should try to raise revenues and control public
spending simultaneously. |