Structural Change in Fiscal Policy and The Permanence of Fiscal Contractions - The Case of Denmark and Ireland
AbstractInstead of relying on descriptive statistics to evaluate the permanence of a fiscal contraction, this paper suggests that this issue should be studied using tests for structural breaks in cointegrating relationships between taxes and spending. We label a fiscal contraction as 'permanent' if a structural break is detected during the contraction period. Applying Gregory and Hansen's (1996) test on Danish and Irish data and find that the fiscal contraction in Ireland (1987-1989) induced a structural change in fiscal policy while the results from the Danish data do not imply such a regime shift. We discuss possible explanations for this finding
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2002:11.
Length: 12 pages
Date of creation: 21 Mar 2002
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
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Fiscal Policy; Fiscal contraction; Cointegration; Structural breaks;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
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