Contemporary Issues and Ideas in Social Sciences

This paper seeks to analyse whether a nexus exists between central gov-ernment revenues and expenditures for 1950-51 to 2003-04 by studying the relationship between total receipts and an array of expenditure measures so as to determine whether the spend and tax or tax and spend hypotheses hold for government finances in India. The empirical exercise of the paper provides us with mixed results. Significant uni-directional causal movements from expenditures to revenues for three of the seven revenue-expenditure pairs viz. total expenditures-total receipts, adjusted profile of expenditures-total receipts and total expenditures-tax receipts indicate that expenditures lead and revenues follow (spend and tax hypothesis). However, significant uni-directional causal effects from receipts to expenditures are also seen for two of the seven revenue-expenditure pairs namely, revenue expenditures