Explosive U.S. budget deficit
AbstractIn this study, we present new evidence that the postwar U.S. federal budget deficit was explosive in nature. Because of the government's inevitable attempts to reduce high or rapidly growing budget deficits, the deficit may contain a substantial component that periodically collapses, which renders the standard unit root tests biased toward stationarity. We apply a newly proposed recursive unit root test for explosiveness, which is known to be powerful to the periodically collapsing component. Although the evidence for explosiveness we found herein is not overwhelming, this study should at the very least serve as a warning against a blind application of standard unit root tests to budget deficits, which may harbor components that periodically collapse.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 29 (2012)
Issue (Month): 4 ()
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Web page: http://www.elsevier.com/locate/inca/30411
Budget deficit; Sustainability; Periodically collapsing; Recursive unit root test; Explosiveness;
Find related papers by JEL classification:
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
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