Fiscal policy in Sweden: effects of EMU criteria convergence
This paper investigates the sustainability of fiscal policy in Sweden performed during the period 1963:01-1997:04. On the basis of Johansen's VAR and the augmented Granger causality tests, the results show that taxes and spending are causally related in the long-run and the homogeneity condition is supported empirically. The effect of EMU criteria convergence on fiscal policy is also investigated empirically. “Pantula principle” is applied for determining the form of deterministic trend component. Special attention is given to the lag-choosing process.
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