Abstract:

The aim of this study is to examine the relationship between excise taxes revenues and government spending areas in OECD countries. Panel data causality analyzes were performed for 20 OECD member countries using yearly data for the 1995-2016 period to investigate the relationship between government spending in education, health, public services, defense, and social protection areas and excise tax revenues. At the end of the analysis, two-way causality relationship between excise tax and defense, education, health, general public services, and social protection spending have been observed. The results support both the spend- tax hypothesis and the tax-spend hypothesis. Furthermore, the tax-spend hypothesis is stronger in social protection spending and the spend-tax hypothesis is stronger in general public spending. Health spending strongly supports two hypotheses. It can be interpreted that the increases in defense, education, and general public services spending in the economies of OECD countries are financed by an increase in excise tax revenues. The bi-directional causality between health spending and excise tax revenue shows that both the increased excise tax revenue is directed towards health spending and excise revenues are used to cover health spending.

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