Is the US Fiscal Deficit Sustainable? A Fractionally Integrated and Cointegrated Approach

Juncal Cuñado (), Luis Gil-Alana and Fernando Pérez de Gracia ()

No 02/02, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: The sustainability of fiscal deficits has received in recent years increasing attention from economists. Empirical work has concentrated on both the univariate properties of debt and the cointegration properties of public revenues and expenditures. In this paper, we examine if sustainability of the US fiscal deficit holds by means of studying the univariate properties of the difference between public revenues and expenditures. However, instead of using classical approaches based on I(1) or I(0) integration techniques, we use a methodology based on fractional processes. The results show that the public deficit in the US is an I(d) process with d slightly smaller than 1, implying that fiscal deficit is mean reverting, and thus, sustainable, though the adjustment process towards equilibrium will take a very long time.

JEL-codes: C32 E62 H60 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2002-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published, Journal of Economics and Business, 2004, vol. 56(6): pp. 501-526

Downloads: (external link)
http://www.unav.edu/documents/10174/6546776/1132240565_wp0302.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:una:unccee:wp0202

Access Statistics for this paper

More papers in Faculty Working Papers from School of Economics and Business Administration, University of Navarra
Bibliographic data for series maintained by ().