Multicointegration and Sustainability of Fiscal Practices

Lori Leachman, Alan Bester (), Guillermo Rosas and Peter Lange

Economic Inquiry, 2005, vol. 43, issue 2, 454-466

Abstract: Using multicointegration methodology, we develop criteria for testing sustainability of fiscal budgeting processes across all states of nature. Criteria are derived from the optimal control literature where levels and rates of change of a system of variables are determinants of policy response. The appropriate policy response mechanisms are outlined and linked to the multicointegration methodology. We then test government spending and revenue systems of 15 industrialized countries for the presence of such mechanisms. We find that only Norway and the United Kingdom exhibit policy responses that are consistent with our criteria.(JEL H6, E62, C22) Copyright 2005, Oxford University Press.

JEL-codes: C22 E62 H6 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (18)

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