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Nonlinearities, co-trending and budget balance sustainability

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  • Mark J. Holmes

    ()
    (Department of Economics, University of Waikato,Private Bag 3105, Hamilton 3240, New Zealand)

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.

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Bibliographic Info

Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

Volume (Year): 40 (2010)
Issue (Month): 3 (December)
Pages: 369-376

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Handle: RePEc:eap:articl:v:40:y:2010:i:3:p:369-376

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Keywords: Budget balance; nonlinearities; co-trending; sustainability;

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