Is the US Fiscal Deficit Sustainable? A Fractionally Integrated and Cointegrated Approach
AbstractThe sustainability of fiscal deficits has received in recent years increasing attention from economists. Empirical work has concentrated on both the univariate properties of debt and the cointegration properties of public revenues and expenditures. In this paper, we examine if sustainability of the US fiscal deficit holds by means of studying the univariate properties of the difference between public revenues and expenditures. However, instead of using classical approaches based on I(1) or I(0) integration techniques, we use a methodology based on fractional processes. The results show that the public deficit in the US is an I(d) process with d slightly smaller than 1, implying that fiscal deficit is mean reverting, and thus, sustainable, though the adjustment process towards equilibrium will take a very long time.
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Bibliographic InfoPaper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 03/02.
Length: 30 pages pages
Date of creation: May 2002
Date of revision:
Publication status: Published, Journal of Economics and Business, 2004, vol. 56(6): pp. 501-526
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Web page: http://www.unav.es/facultad/econom
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
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
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