Structural break, unit root, and the causality between government expenditures and revenues

Muhammad Islam

Applied Economics Letters, 2001, vol. 8, issue 8, 565-567

Abstract: Government expenditures and revenues are shown to be trend stationary with a break in the deterministic trend. This is in contrast to the claim that these two series are non-stationary and integrated of order 1. It is therefore inappropriate to first difference data to achieve stationarity. Instead, data is appropriately de-trended using endogenously determined break dates. Tests using the de-trended data show that causality is unidirectional, with expenditures causing revenues.

Date: 2001
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DOI: 10.1080/13504850010018266

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