The methodology for the testing of bubbles in asset prices has recently been applied to testing the sustainability of government debt accumulation. In particular, Hamilton and Flavin (1986) and MacDonald and Speight (1987) use the methodology developed by Flood and Garber (1980) in an attempt to identify a period of bubble financing of the budget deficit for the US and UK respectively. MacDonald and Speight and Trehan and Walsh (1988) also use recently developed cointegration methods in an alternative test of the hypothesis of unsustainable financing. This paper uses the above methods to test for bubble financing of the fiscal deficit for Australia. We develop the method to allow for the effects of income growth on the sustainability of deficits and critically appraise some of the methods used in previous studies and suggest improvements. Our finding is that over the period 1953/54 to 1986/87 there is no evidence of unsustainability of government debt. The analysis suggests that instead, seignorage as used to pay for sustained fiscal deficits, and that the overall level of debt as a ratio of GDP fell over the period as a result of strong GDP growth and inflation.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
For technical questions regarding this item, or to correct its listing, contact: (Paula Drew).
Related research
Keywords:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)