Is the Thai Government Revenue-Spending Nexus Asymmetric?

This paper examines the relationship between government revenue and spending in Thailand using both linear and nonlinear cointegration techniques. A residual-based cointegration test with an unknown structural break is used to detect the linear long-run relationship between government revenue and spending. For nonlinear cointegration tests, both TAR and MTAR models are estimated. The empirical results from the estimate of the redidual-based test for cointegration suggest that there is the positive long-run relationship between government revenue and spending when revenue is dependent variable. However, the results from the estimates of the TAR and MTAR models show the absence of asymmetric adjustments towards the long-run equilibrium. Based upon the results of linear cointegration test, short-run dynamics indicate that any deviation from budgetary disequilibrium will be corrected. In causality sense, there is a short-run unidirectional causality running from government spending to revenue. The evidence appears to support the fiscal spend-and-tax hypothesis. This finding implies that policymakers should be careful in exercising expansionary fiscal policy measures because fiscal deficits will occur when revenue falls short of spending.