Nonlinearities, co-trending and budget balance sustainability

Mark J. Holmes ()

Economic Analysis and Policy (EAP), 2010, vol. 40, issue 3, pages 369-376

Abstract: The study provides new evidence on the sustainability debate concerning the US budget balance. Existing studies are often only able to reject non-cointegration between government expenditure and revenue once structural breaks or regime changes are allowed for. Using a testing procedure advocated by Bierens, this study provides a different perspective on this issue. Government expenditure and revenue are both found to be stationary around a nonlinear deterministic trend, and they are co-trended insofar as they share a common nonlinear deterministic trend.

Keywords: Budget balance; nonlinearities; co-trending; sustainability (search for similar items in EconPapers)
JEL-codes: H60 C32 (search for similar items in EconPapers)
Date: 2010
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Persistent link: http://EconPapers.repec.org/RePEc:eap:articl:v:40:y:2010:i:3:p:369-376

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