| Summary: | Government Expenditure that continuously increases, stagnant Domestic
Revenue, and continuously increasing dependence on petroleum revenue are not
the good indications for the economic development of Timor Leste in the future. It
is expected that government expenditure can create a good investment climate to
lead increase in Domestic Revenue, so it can eventually supports the sustainability
of development in the future. But it can contribute to positive change.
The objectives of this study are to analyze causal relationship between the
variables of Domestic Revenue, Petroleum Revenue, and Government
Expenditure in Timor Leste, as well as to find out what kind of the relationship:
one way, two ways, or even no relationship.
The variables used in the study were Government Expenditure (GexpY),
Domestic Revenue (DrevY1), and Petroleum Revenue (PrevY2). The study used
secondary data, time series from January 2004 to December 2011. It used both
Vector Autoregression (VAR) method and Granger Causality Test to find out the
relationship causal relationship between Revenue and Government Expenditure.
Result of the unit root test shows that data of Government Revenue and
expenditure were stationary at first difference level. Co-integration test shows that
there was no long-run relationship between Government Revenue and
Expenditure. Result of the granger causality test shows that there was only oneway
relationship between Petroleum Revenue (PrevY2) and Government
Expenditure. The study indicates that only Petroleum Revenue had a significant
effect on Government Expenditure (GexpY), while Domestic Revenue did not
have a significant effect on government expenditure.
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