Budget and Mineral Revenues in Botswana

Author(s)

Mufaro Andrew Matandare , Refilwe Ngwako ,

Download Full PDF Pages: 125-138 | Views: 926 | Downloads: 319 | DOI: 10.5281/zenodo.3496824

Volume 8 - June 2019 (06)

Abstract

Policymakers have been interested in the area of public finance especially in the issue of potential links among and between government expenditure and revenue. On one side, the access to tax revenue accumulation presents difficulties due to a narrow tax base as most people in developing countries are low-income earners and tax collection is marred by several loopholes.  On the other side, developing countries government expenditures are constantly increasing as they aspire for economic development. This poses a challenge for developing countries given shocks in their main revenue sources. The paper analyses the dynamic relationship between budget, mineral revenue shocks (main revenue source for Botswana) and other major macroeconomic variables in Botswana by applying a VAR approach. It uses quarterly data points from 1995; Q1 to 2011: Q3.  Results show that a shock in government expenditure points to a negative relationship between this variable and the revenue variables. This suggests that as the government spends it reduces the tax holdings of the country. It is thus recommended that prudent spending should be done in order to minimize the effects of revenue shocks.  Furthermore, an expansionary fiscal policy should ensure that crowding out is kept in check.

Keywords

Government expenditure, Tax Revenue, mineral revenue, VAR, Botswana

References

  1. Agénor, P.R., and Montiel, P.J. (1996). Development Macroeconomics. Pricenton.
  2. Akpan, E.O. (2009). Oil price shocks and Nigeria’s macroeconomy.Unpublished. Available Online; http// www.csae.ox.ac.uk/conferences/2009.
  3. Bank of Botswana Annual Reports. Various issues. Bank of Botswana. Botswana.
  4. Barro, R. (1974). The Ricardian Approach to Budget Deficits. The Journal of Economic Perspectives. Vol 3 (2).
  5. Bernheim, B. D. (1989). A Neoclassical Perspective on Budget Deficits, Journal of Economic Perspectives, pp. 55-72.
  6. Botswana Financial Statistics.Various years.Bank Of Botswana. Botswana.
  7. Darrat, A.F. (1989). Fiscal Deficits and Long-Term Interest Rates: Further Evidence. Southern Economic Journal. Vol. 56 (2), pp. 363-374.
  8. Devereux, B.M. (1995). Anticipated Budget Deficits and the Real Exchange Rate. The Canadian Journal of Economics. Vol. 28. pp. S207-S220.
  9. Eltony, M.N. (2011). Oil Price Fluctuations and their Impact on the Macroeconomic Variables of Kuwait: A Case Study Using a VAR Model: API-Working Paper Series 9908, Arab.
  10. Egwaikhide, F.O ,Chete, L.N, and Falkun, G.O. (1994). Exchange Rate, Budget deficit and Inflation: The Nigerian experience. African Economic Research Consortium. Research Paper 26.
  11. Enders, W. (2010). Applied Econometric Time-series third Edition.John Wiley and Sons International, Danvers.  
  12. Green, W.H. (2003). Econometric Analysis. 5th Edition. Pearson Education International. New Jersey.    
  13. Government of Botswana (2005) Central Statistics Office, Statistical Bulletin, Gaborone.
  14. Government of Botswana. Budget speech. Various years. Gaborone. Botswana.
  15. Hauner, D and Kumar, M.S. (2011). Interest rates and budget deficits revisited: Evidence  from the G7 countries. Applied Economics. Vol 43 (12). 1463-1475.
  16. Howard, M. (2001). Public Sector Economics for Developing Countries. University of West Indies. Canada.
  17. Hoelscher, G. (1986). New Evidence on Deficits and Interest Rates. Journal of Money, Credit and Banking. Vol. 18 (1). pp. 1-17.
  18. Koru, A.T and Özmen, E. (2003). Budget deficits, money growth and inflation: The Turkish Evidence. Applied Economics. Vol 35 (5). pp. 591-596.
  19. Lutkepohl, H. (2007). New Introduction to Multiple Time Series Analysis. Springer: New York.
  20. Melvin, M., Schlagenhauf, D., and Talu, A. (1989). The U.S. Budget Deficit and the Foreign Exchange Value of the Dollar. The Review of Economics and Statistics. Vol. 71 (3).
  21. Ricardo, D. (1821). On the Principles of Political Economy and Taxation: History of Economic Thought. McMaster University.  
  22. San, Y, S., and Su, T.M. (2003).The impact of the budget deficit on Currency value : A Comparison of Asian and European countries. Multinational Business Review. Vol.           11 (3). pp. 94 – 112.
  23. Saad, W., and Kalakech, K. (2009). The Impact of Budget Deficits on Money Demand: Evidence from Lebanon. Middle Eastern Finance and Economics. pp. 66-78.
  24. Vamvoukas, G. A. (1998). The Relationship Between Budget Deficits and Money Demand: Evidence from a Small Economy. Applied Economics. Vol 30. (3). pp. 375-82.
  25. Yellen, J. (1989). Symposium on the Budget Deficit. Journal of Economics Perspectives Vol 3 (20). pp. 17-21.
  26. Zahid, K.H. (1988). Government Budget Deficits and Interest Rates: The Evidence since 1971,
  27. Using AlternativeDeficit Measures. Southern Economic Journal. Vol. 54 (3). pp. 725-731.

Cite this Article: