Nonlinearities, co-trending and budget balance sustainability

Mark Holmes ()

Economic Analysis and Policy, 2010, vol. 40, issue 3, 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: C32 H60 (search for similar items in EconPapers)
Date: 2010
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