Threshold Cointegration and Asymmetric Adjustment between Government Spending and Revenue in Cote D'ivoire

Yaya Keho ()

Asian Journal of Empirical Research, 2013, vol. 3, issue 4, 420-432

Abstract: This paper re-examines the inter-temporal relationship between government expenditures and revenues in Côte d’Ivoire while relaxing the common assumption of a symmetric adjustment process underlying the standard cointegration tests. Our empirical methodology makes use of recent developments on threshold cointegration that considers the possibility of non-linear and asymmetric adjustment. The empirical results show the evidence of cointegration and asymmetric adjustment to budgetary disequilibria. Further, we find that the short-run adjustment process to correct budgetary disequilibria is faster when the budget is improving than when it is worsening. When the budget is worsening spending rather than revenues, carry the burden of restoring the long-run relationship. This indicates that government expenditures play a significant role in reducing budget deficits.

Keywords: Government expenditure; Revenue; Threshold cointegration; Asymmetric adjustment (search for similar items in EconPapers)
Date: 2013
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