Revenue-Expenditure Nexus of Selected Northern States of India: A Time Series Analysis

The relationship between government revenue and government expenditure has been an important topic in public economics, given its relevance for policy especially with respect to the budget deficit. This paper examines the temporal relationship between government expenditures and revenues for northern states in India for the period of 1980–2010. We find support for tax-spend hypothesis for Madhya Pradesh and fiscal synchronization for Uttar Pradesh using an error correction model and granger causality test while the data for Rajasthan and Bihar did not find any evidence of cointegration and also failed to show granger causality suggesting that revenue and expenditure decision may be institutionally uncoupled.