Taxing and Spending in the Long View: The Causal Structure of US Fiscal Policy, 1791-1913.

Causal relations between US federal taxation and expenditure are analyzed using an approach based on the invariance of econometric relationships in the face of structural interventions. Institutional evidence for interventions or changes of regime and econometric tests for structural breaks are used to investigate the relative stability of conditional and marginal probability distributions for each variable. The patterns of stability are the products of the underlying causal order. Consistent with earlier work on the post World War II period, we find that dominant causal direction (with only a short-lived reversal) runs from taxes to spending in the period before World War I. Copyright 2000 by Oxford University Press.