Causation, Spending, and Taxes: Sand in the Sandbox or Tax Collector for the Welfare State?

Causal relations between federal expenditure and taxation 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 combined with econometric tests for structural breaks a...

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Bibliographic Details
Published in:The American economic review 1992-03, Vol.82 (1), p.225-248
Main Authors: Hoover, Kevin D., Sheffrin, Steven M.
Format: Article
Language:English
Subjects:
Budgeting
Causality
Causation
Changes
Comparative studies
Critical values
Econometrics
Economic models
Economic statistics
Economic structure
Economic theory
Expenditures
Federal government
Government spending
History
Income taxes
Receipts
Regression analysis
Spending
Taxation
Taxes
Tranquility
War taxes
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Summary:Causal relations between federal expenditure and taxation 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 combined with 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 underlying causal order. We find two distinct causal structures operating in the postwar era. Before the mid-1960's, taxes appear to cause spending. After the late 1960's, taxes and spending are causally independent.
ISSN:0002-8282
1944-7981