Government Expenditures and Revenues: Evidence of Fractional Cointegration in an Asymmetric Modeling

Luis Gil-Alana

International Advances in Economic Research, 2009, vol. 15, issue 2, 143-155

Abstract: In this paper, we examine the relationship between the US government expenditures and revenues using a fractional cointegration framework. In doing so, we permit a much richer degree of flexibility in the dynamic adjustment process toward equilibrium than in the classical case of cointegration. Moreover, we relax the assumption of a symmetric adjustment process throughout the use of threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) models in the error correction representation of the process. The results show that both individual series are non-stationary I(1) and we do not find evidence of cointegration of any degree. However, if we take into account a structural break at 1973(2), fractional cointegration is found if the underlying process is autocorrelated, especially in the asymmetric modeling. Copyright International Atlantic Economic Society 2009

Keywords: Public revenues; Public expenditures; Fractional integration; Asymmetric modeling; Structural breaks; C32; E62; H60 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11294-008-9198-z

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