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Nonlinearities, co-trending and budget balance sustainability

Author

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  • Mark J. Holmes

    (Department of Economics, University of Waikato,Private Bag 3105, Hamilton 3240, New Zealand)

Abstract

The study provides new evidence on the sustainability debate concerning the US budget balance. Existing studies are often only able to reject non-cointegration between government expenditure and revenue once structural breaks or regime changes are allowed for. Using a testing procedure advocated by Bierens, this study provides a different perspective on this issue. Government expenditure and revenue are both found to be stationary around a nonlinear deterministic trend, and they are co-trended insofar as they share a common nonlinear deterministic trend.

Suggested Citation

  • Mark J. Holmes, 2010. "Nonlinearities, co-trending and budget balance sustainability," Economic Analysis and Policy, Elsevier, vol. 40(3), pages 369-376, December.
    • Handle: RePEc:eee:ecanpo:v:40:y:2010:i:3:p:369-376
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    More about this item

    Keywords

    Budget balance; nonlinearities; co-trending; sustainability;
    All these keywords.

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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