Government Expenditure and Revenue Collection

Government Expenditure and Revenue Collection CHAPTER 1: INTRODUCTION 1.1 Overview The relationship between government revenue and expenditure is a very important topic and has been an essential issue for many economists and policy makers as it represents budget deficit, government expenditure Plans and taxation structure of a country. Since the main objective of every government is to improve economic growth with low debt levels, better education system, development of infrastructure and job opportunities better fiscal policy is needed to achieve these goals. From a short term perspective fiscal policy is said to be expansionary when government expenditures exceeds the total revenue and the resulting deficit is then financed by the government, However if these expenditures contributes in economic growth then there is a long term relationship exist between government expenditure and economic growth. In addition different studies indicate that the determination of Economic growth is depended on tax levels. Whereas many believe that the most significant factor that c ontributes in economic growth is tax level as the collection for development purposes of most developed and developing countries depend on tax revenue. 1.2 Research Problem In Pakistan the level of budget deficits have consistently increasing from 2005 which is then financed by the government through external and domestic borrowing resulting in a higher debt levels due to high interest cost associated with it and leads to more future tax expectations. Thus the financing by the government for the compensation of deficit is an important variable, several studies have put light on the outcome of fiscal deficit but very few have tried to find the reasons and causes of these deficits which is why the nexus between government revenue and expenditure is still an unsolved issue. Therefore the main purpose of this research is to study the causal relationship between government revenue and expenditure. 1.3 Hypotheses H1: Tax Revenue causes Government Expenditure. H2: Government Expenditure causes Tax Revenue. H3: Tax Revenue and Government Expenditure bidirectionally cause to each other. 1.4 Outline of the Study The research studies the causal relationship between government expenditure and tax revenue to see the reasons for the consistent budget deficits in Pakistan from many years. In addition time series analyses have been done to forecast the trend of government expenditure and revenue based on the leading variable. CHAPTER 2: LITERATURE REVIEW Nanthakumar and Taha (2007) have found a stable relationship between spending and revenue. Furthermore there is a long-term impact exist expenditures that enter as input into the production function and those that enter as inputs in investment technologies. Koch, Schoeman, and Tonder (2005) found that there is an association between burden of taxes and economic growth according to the findings based on the data of 1960-2002 if tax burden decreases economic growth increases significantly. Friedman (1982) explains expenditure of the government depends on total revenue because as taxes increases expenditure increases by which deficit remains at the same level, therefore the level of fiscal deficit cannot be reduced by increasing taxes. Buchanan and Wagner (1977) on the other hand have presented an alternative hypothesis that increase in taxes does not lead towards low expenditures because taxes creates higher price of goods for the public due to high interest cost associated with it Buchanan and Wagner suggest that in order to restore deficit government should limit its financing ability. Sobhee (2004) tested the causality from tax to expenditure and from expenditure to taxes by using the data of public finance and founded that for the utilization of public expenditure in a small economy government first accommodate the necessary funds, therefore to avoid the situation of fiscal deficit the government must carefully monitor and control its spending programs. Fasano and Wang (2002) in a research on GCC countries founded that the primary Source of revenue is oil and due to the economic fluctuations medium-term expenditure strategy should be adopted according to which expenditure should not exceed the non-oil revenue so that in recessions to compensate expenditures oil revenues can be injected by short-term accommodations. Second hypothesis where causality runs from expenditure to revenue the government first spend and then to accommodate the required level of expenditure adjusts tax policy. Peacock and Wiseman (1979) argue that due to economic crises government expenditure increases and remain at the same level even when the crises is over. In other words government expenditure is driven by strong economic crises which is able to change public perception about the size of the government. Gounder, Narayan, and Prasad (2007) find compatibility with the second hypothesis that the increase in taxes for the accommodation of government spending affects on the capital investment by investors due to the fear of paying higher taxes in future. The third hypothesis is fiscal synchronization according to which expenditure and revenue decisions are independent and bilaterally cause to each other. Reflecting the traditional theories for the demand for public goods. Meltzer and Richard (1981), the demand of public expenditures and taxes need to compensate these expenditures are compared with many alternative spending programs for cost benefit analysis, therefore the practical implication of this hypothesis is bidirectional causality. Narayan and Narayan (2006) suggest three reasons regarding the importance of nexus between government revenue and expenditure first if proper implementation on policies is taken into consideration regarding government revenue fiscal deficit can be avoided, second if causality runs from expenditure to revenue outflow increases due to the fear that government spends first and pay for it later by increasing taxes. Third in case of bidirectional causality expenditure can rise faster than revenue which can create huge budget deficits because revenue and expenditure decisions are independent of each other. Baharumshah and Lau (2007) Find two sets of different results where the fiscal policy of Korea, Singapore and Thailand is driven by expenditures where the government finances revenue for the planned expenditures according to the limit of the balanced budget which facilitate the long term sustainable budget position. However the taxation system should be implemented by taking care of the overall smooth fiscal policy. Whereas in case of Malaysia and Philippines expenditures and revenues are independent of each other and the level of government expenditures and revenues is determined through fiscal policy based on marginal cost and revenue. Furthermore the findings indicate that in order to achieve long-term economic growth fiscal consolidation is necessary to reduce deficits and debt levels which lead a country to fulfill expenditure priorities better and provide funds to more productive sectors. Griffin and McKinley (1992) believes that the expenditure policies of the government should be directed towards long-term future growth and for the well being of the people, Therefore activities that contribute more on socio economic development should be increased instead of using resources and funds to military defense projects. King and Rebelo (1990) taxation has a very important role in the long run growth process of a country where growth is not affected by indirect taxation, however direct taxation is harmful for growth. Nanthakumar and Taha (2008) found in an analysis of Malaysia that the major part of taxes is direct taxes and reducing direct and indirect taxes leads to reduce in government expenditures, In addition non-tax revenue does not contribute much in economys growth. Hondroyiannis and Papapetrou (1996) find unidirectional causality running from government expenditure to revenues in Greece where the reason of fiscal deficit from a long period of time was government spending decisions. The government spending to GDP is very high in Greece which results an operating inefficiency for the economy. Furthermore the results indicated that reducing fiscal deficit without reducing the government expenditure leads to failure. Ahiakpor and Amirkhalkhali (1989) Based on the analysis of Canada found that to show the relevant results of fiscal policy government increase taxes which is a temporary and incomplete act in order to fully take control over fiscal deficit the government must reduce or limit its expenditures instead of finding ways to increase tax revenue burden on public. Baghestani and McNown (2004) in a study of Egypt and Jordan claim that to promote domestic savings and private investment it is necessary to eliminate budget deficit for both the counties. Baghestani supported the causality from tax revenue to expenditure in case of Egypt and bi-lateral causality in case Jordan. Furthermore promoted the process of privatization because it facilitate high domestic saving and investment and at the same time helps to reduce fiscal deficit. Neyapti (2008) studied the influence of fiscal decentralization on government revenue and expenditure and indicated that decentralization improves quality of governance which leads to decrease in budget deficit and stable economic condition. However the efficiency of fiscal decentralization increases in case of large population. Keho (2010) Study the data fo 1660 to 2005 to analyses the causal relationship between government expenditure and tax revenue to see which expenditure and revenue items plays a part in the reduction of budget deficit and found that GDP has significant effect on government expenditure. Furthermore the findings of granger causality test indicate unidirectional causality from government revenue to expenditure according to the findings the implementation for the elimination of fiscal deficit should not be made by just increasing revenues. Thus for the beneficial results spending cuts are necessary. In other words tax system should be made with proper spending control system. Brennan and Buchanan (1980) suggest that in order to reduce fiscal deficit constitutional limits should be imposed on post-constitutional government to reduce the revenue collection by latter governments so that position of maximum financing of goods demanded by public and minimum revenue collection can be achieved. Baffes and Anwar (1990) conducted the research for the countries Argentina, Brazil, Chile, Mexico, and Pakistan to determine the behavior of government towards revenue and expenditures for the alignment of fiscal deficit. The results found to be positive for Mexico, Brazil and Pakistan while the similar findings havent been found for Argentina and Chile. For Brazil, Mexico and Pakistan causality runs in both ways in other words bidirectional causality where decisions for the government spending and revenue are taken simultaneously. However in case of Argentina and Chile causality runs from expenditure to revenue. The results indicates that to control budget deficit the government should increase revenue collection and restrain expenditure whereas public expenditures should be reduced in Argentina and Chile. Stoian (2008) founded in case of Romania by applying Johansen cointegration and Error Correction model that the long run relationship between government revenue and expenditure do not affect major fiscal imbalances. CHAPTER 3: RESEARCH METHODS 3.1 Method of Data Collection Data of the two variables Government Expenditure and Total Revenue is taken from secondary sources with the help of multiple sources which includes (Ministry of Finance), (State bank of Pakistan) and (Hand book of Statistics on Pakistan Economy). 3.2 Sample Size Sample of 31 observations have been used by using the data of public finance from the year 1979-2010. Where the variable (Total Tax Revenue) has been created by adding indirect-tax, direct-tax, Non-tax revenue and surcharges and (Total Expenditure) has been calculated by adding Development and Non-Development Expenditures. 3.3 Research Model Granger model is used to study the causality where TR is the total revenue and TE is total government expenditure. TRt = à ¢Ã‹â€ ?1 + ÃŽÂ ´1 + TEt-1 + TEt-2 + ET1 TEt = à ¢Ã‹â€ ?2 + ÃŽÂ ´2 + TRt-1 + TEt-2 + ET2 The above two equation represents the hypothesis where the causality running from total expenditure to revenue in equation one and from revenue to expenditure in equation two. The rejection of any hypothesis concludes unidirectional causality between government expenditure to revenue. However, rejection of both the hypothesis concludes bidirectional causality in other words fiscal synchronization exists between government revenue and expenditure. 3.4 Statistical Technique In this research granger causality test by Granger (1969) has been applied to study the causal relationship by comparing one time series with another (Government Expenditure with Government revenue) where one variable becomes the cause of the other variable to predict it significantly. In addition cross-correlation has been applied to assess the correlation between both time series variables. CHAPTER 4: RESULTS 4.1 Findings and Interpretation of the results Table 4.1 The summary given in the table above shows that there is a unidirectional causality exist between total government expenditure and total revenue, as the value of F-Statistic is 3.5, Furthermore both lag 1 and lag 2 are tested to achieve better results as table 4.2 indicates therefore the null hypothesis (TOTAL_RE does not Granger Cause TOTAL_EX) is rejected. Table 4.3 Figure 4.1 Total_Revenue with Total_Expenditure Lag Number The results of cross-correlation indicates total revenue as a leading time series variabler with a strong correlation of .994 with government expenditures at lag 0, furthermore correlation a positive correlation has been found from lag 1 to lag 11, However the correlation is decreasing and from 12 to 16 lags correlation in negative predicting that with the increase in total revenue, total government expenditure will decrease in future. 4.2 Hypotheses Assessment Summary CHAPTER 5: CONCLUSION, DISCUSSION, IMPLICATIONS AND FUTURE RESEARCH 5.1 Conclusion The research studies the causal link between total government expenditure and total revenue in Pakistan using granger causality test and the supportive cross correlation from 1979-2010. The result from granger causality supports the hypothesis that tax revenue causes government expenditure in Pakistan. In addition cross correlation results have indicated long-term results that with the increase in revenue expenditures will increase. Therefore the major conclusion drawn from this research is that in order to eliminate the problem of fiscal deficit and sustainable economic growth government should focus on the policies which facilitate increasing revenue. 5.2 Discussion Various studies have analyzed the causal relationship between government expenditure and revenue. Some supported with unidirectional causality occurring from revenue to spending and from expenditure to revenue whereas some have indicated the result of bidirectional causality. However, both the variables have significant impact on budget deficit and economic growth. Fiscal deficit in Pakistan is a major issue as the findings of cross correlation indicates that the revenue and expenditures are correlated which means that as revenue increase expenditure increases and deficit remains at the same level and to compensate this deficit government increases its debt financing from domestic and foreign sources which leads towards inflation and high interest rates. 5.3 Implications and Recommendations The model and analysis of this study is very useful for economists and policy makers as it helps in enhancing revenue by tax reform programs. In addition for the determination of optimal spending expenditure reform assessment can be done through cost and benefit analysis which will help in setting objectives for tax collections and better utilization of taxes. 5.4 Future Research Future research possibilities could be as follows first variables like national income and debt financing could be included in the research. Second data sets of multiple countries would be interesting to analyze the causal relationship using the same model in comparison with this research.

Pick n Pay’s Essay

What is your strategy to reverse Pick n Pay’s loss of market share? Pick n Pay lost market share in part because it opened materially less space than some of its major competitors. A significant proportion of its capex was invested in supply chain technology infrastructure in recent years, which by its nature doesn’t drive sales compared to stores. Our capital focus is now on new stores and refurbishment, which will drive sales and, in time, profitability. Over the past year we have refreshed, without substantively altering our strategy. Our overarching ambition is for the Group to become the â€Å"Retailer of choice for all South Africans†. This builds on Pick n Pay and Boxer’s brand strength and strong store portfolio. Importantly this refreshed strategy does not represent a major departure from the strategy that has been followed for the past five years. We have seven themes geared to ensure that the business can grow sustainably and profitably. There is a balance of growth-driven priorities, focusing on space, customer, franchise and product, and those largely focused on improving efficiency such as replenishment and store operations. The â€Å"One Pick n Pay† initiative ties these together to ensure that the business works well as a unified whole. Strategic priority: Grow selling space ahead of the market There is substantial competition for retail space both within South Africa and in other African markets. Ensuring that Pick n Pay increases its overall share of trading space over the long term is an important strategic priority. Over the past three years our space growth has lagged that of our competition particularly into the faster growing lower income areas and small stores. This not only directly reduces our market share but also puts pressure on like-for-like sales growth. We will continue to develop store formats and channels that meet customers’ changing needs both in Pick n Pay and Boxer, in South Africa and beyond. Additionally we continue to build a pipeline of new sites, whether greenfield or through acquisition that will ensure we meet our aspirations. Strategic priority: Build deep customer relationships The launch of our customer rewards programme Smartshopper gives us a  significant opportunity to get to know our customers’ shopping habits and preferences substantially better than we do today. Since its launch in March 2011 the programme has been a great success. After just one year we now have over five million active cardholders, exceeding our initial target by two million. This enables us not only to know and understand each customer a great deal better, but to communicate with our customers in a different and more engaging manner. We have direct access to the vast majority of Smartshopper customers by either sms or email, which means that we can send targeted marketing communications directly to them. We can also ask for feedback directly from them. All of this translates into a very valuable two-way dialogue with our customers. As a result we are designing and executing marketing campaigns which are more relevant to our customers. We are extracting insights from their shopping habits data in order to tailor our product ranges and more accurately serve them. All of this will assist us in growing our sales volumes significantly. Strategic priority: Revolutionise Pick n Pay’s product offer During the past 12 months we have invested considerable time and resources in building a single specialised category buying division. Prior to the establishment of this division, Pick n Pay’s sourcing activities were distributed across the operating regions. This led to fragmentation of the Group’s buying scale, with each buyer having a wide range of products to source. Our new specialised category buying division is made up of category teams each of which is responsible for the end-to-end profitability of a specific product category. They are tasked with developing a product range that meets all customer needs, sourcing those products at the lowest possible cost, constructing shelf layouts that help customers find what they are looking for easily, building a promotional plan that generates customer excitement, increased volumes and higher margins, and ensuring that Pick n Pay’s prices remain hig hly competitive. Included in their responsibilities is the task of improving our Pick n Pay branded offer.

Newspaper article Essay

The Pirates put out an amazing playoff season, this year having been the first year in the playoffs since 1992, but on October 9, 2013 they lost to the St. Louis Cardinals ending their amazing playoff season. In their last playoff game in St. Louis the Pirates lost 6-1 to the Cardinals, ending the season. In the second inning the Cardinals scored two runs taking the lead over the pirates. There was no more scoring until the sixth inning when the Cardinals scored yet another run, now having a three point lead over the Pirates. In the next inning the Pirates scored their first run. And sadly, the Cardinals scored three more runs in the eighth inning ending the game at a score of 6-1. The Pirates played the best they’ve played since 1992, which wasn’t enough this time. There was some amazing plays in the game, but I believe an incredible one was in the fourth inning when Starling Marte covered about twenty feet to catch a fly ball and get the second out with his incredible dive catch. An articles read about their season said that they played everything right, it was a amazing season but it wasn’t enough this year, they needed a little more. This year the Pirates MVP player is Andrew McCutchen, he put up an OPS+ of 158, and swiped 27 bags this season. The teams LVP was Barmes, who plays shortstop, he hit a measly . 211/. 249/. 309, which is considered quite weak. The Pirates gameplan for next season is to keep the team mostly intact, and to hopefully make it farther into the playoffs next season. According to Christian Hartman † The teams MVP should definitely be McCutchen, he hits well, plays amazing center field, and he’s just overall great. He is everything a player should be. † The Pirates put out an amazing playoff season, this year being their first playoff season since 1992.

Red Army Faction or Baader-Meinhof Group

The left-wing terrorist group Red Army Factions main objective was to protest what they perceived as fascist-leaning and otherwise oppressive, middle class, bourgeois values of West Germany. This general orientation was coupled with specific protests of the Vietnam War. The group pledged allegiance to communist ideals and opposed the capitalist status quo. The group explained its intentions in the RAFs first communique on June 5, 1970, and in subsequent communiques in the early 1970s. The group was founded in 1970 and disbanded in 1998. According to scholar Karen Bauer: The group declared that ... its aim was to escalate the conflict between the state and its opposition, between those who exploited the Third World and those who did not profit from Persian oil, Bolivian bananas and South African gold. ... Let the class struggle unfold! Let the proletariat organize! Let the armed resistance begin!(Introduction, Everybody Talks about the Weather...We Dont, 2008.) Notable Attacks April 2, 1968: Bombs set off by Baader and three others in two Frankfurt department stores cause significant property destruction. At trial, Gudrun Ensslin, Baaders girlfriend and a committed activist, claimed the bombs were intended to protest the Vietnam WarMay 11, 1971: A bombing of US barracks killed one US officer and wounded 13 others.May 1972: Bombing of police headquarters in Augsburg and Munich1977: A series of killings designed to pressure the German government to release detained members of the Group take place, including the assassination of chief public prosecutor Siegfried Buback; the assassination of Dresdner bank; Hans Martin Schleyer, abduction of the head of the Germany Association of Employers and former Nazi party member.1986: Siemens executive Karl-Heinz Beckurts is killed. Leadership and Organization The Red Army Faction is often referred to by the names of two of its primary activists, Andreas Baader and Ulrike Meinhof. Baader, born in 1943, spent his late teens and early twenties as a combination of a juvenile delinquent and stylish bad boy. His first serious girlfriend gave him lessons in Marxist theory and later provided the RAF its theoretical underpinnings. Baader was incarcerated for his role in setting fire to two department stores in 1968, briefly released in 1969 and re-imprisoned in 1970. He met Ulrike Meinhof, a journalist, while in prison. She was to help him collaborate on a book, but went further and helped him escape in 1970. Baader and other founding members of the group were re-imprisoned in 1972, and activities were assumed by sympathizers with the groups imprisoned founders. The group was never larger than 60 people. The RAF After 1972 In 1972, the groups leaders were all arrested and sentenced to life in prison. From this point on until 1978, the actions that the group took were all aimed at gaining leverage to have the leadership released, or protesting their imprisonment. In 1976, Meinhof hung herself in prison. In 1977, three of the original founders of the group, Baader, Ensslin, and Raspe, were all found dead in prison, apparently by suicide. In 1982, the group was reorganized on the basis of a strategy paper called, Guerrilla, Resistance, and anti-Imperialist Front. According to Hans Josef Horchem, a former West German intelligence official, this paper †¦clearly showed the RAFs new organization. Its centre appeared at first still to be, as hitherto, the circle of RAF prisoners. Operations were to be carried out by the commandos, command level units. Backing Affiliation The Baader Meinhof Group maintained links with a number of organizations with similar goals in the late 1970s. These included the Palestine Liberation Organization, which trained group members to use Kalashnikov rifles, at a training camp in Germany. The RAF also had a relationship with the Popular Front for the Liberation of Palestine, which was housed in Lebanon. The group had no affiliation with the American black panthers but announced their allegiance to the group. Origins The groups founding moment was in a demonstration in 1967 to protest the elitism of the Iranian Shah (king), who was visiting. The diplomatic visit drew large grounds of Iranian supporters, who were living in Germany, as well as opposition. The killing by German police of a young man at the demonstration spawned the June 2 movement, a leftist organization that pledged to respond to what it perceived as the actions of a fascist state. More generally, the Red Army Faction grew out of specific German political circumstances and out of broad leftist tendencies in and beyond Europe in the late 1960s and 1970s. In the early 1960s, the legacy of the Third Reich, and Nazi totalitarianism was still fresh in Germany. This legacy helped shape the revolutionary tendencies of the next generation. According to the BBC, at the height of its popularity, around a quarter of young West Germans expressed some sympathy for the group. Many condemned their tactics, but understood their disgust with the new order, particularly one where former Nazis enjoyed prominent roles.