The Dynamic Response of the Budget Balance to Tax, Spending and Output Shocks: Does Model Specification Matter?
AbstractThis paper estimates how the US budget responds to shocks in taxes, spending and output. In particular, we consider the dynamic adjustment of the two budget components (taxes and spending) to such shocks. The recently developed Generalized Impulse Response Function, which takes the historical distribution of the residuals into account, is applied. We select the 'correct' specification, estimate two VAR and two VEC models and compare the results. Our chosen specification suggests that tax, spending and output shocks generate deficits in the long run while the tax and output shocks generate a surplus in the short run. Moreover, model specification matters indeed.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2001:2.
Length: 20 pages
Date of creation: 02 Feb 2001
Date of revision:
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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
Generalized impulse response function; Model specification; VAR; Budget deficit; Fiscal variables;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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