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Budget deficits and economic activity


  • G. Vamvoukas


Using annual data of the Greek economy, this paper explores the relationship between budget deficits and real output. The ultimate purpose is to empirically evaluate the validity of the Keynesian proposition and the Ricardian equivalence hypothesis. The econometric methodology is based on error-correction modeling, Granger bivariate and trivariate causality, and Hendry's general-to-specific technique. The ECM results are consistent with the Keynesian proposition, suggesting a significant and positive relationship between budget deficits and real GNP. Copyright International Atlantic Economic Society 1999

Suggested Citation

  • G. Vamvoukas, 1999. "Budget deficits and economic activity," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 5(1), pages 65-73, February.
  • Handle: RePEc:kap:iaecre:v:5:y:1999:i:1:p:65-73:10.1007/bf02295032
    DOI: 10.1007/BF02295032

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    References listed on IDEAS

    1. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
    2. Jakob De Haan & H. Dick Zelhorst & Robert Eisner & Paul J. Pieper, 1988. "The Relationship between Real Deficits and Real Growth: A Critique [with Rejoinder]," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 11(1), pages 148-168, October.
    3. Beard, Thomas R. & McMillin, W. Douglas, 1991. "The impact of budget deficits in the interwar period," Journal of Macroeconomics, Elsevier, vol. 13(2), pages 239-266.
    4. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
    5. Eisner, Robert, 1992. "Deficits: Which, How Much, and So What?," American Economic Review, American Economic Association, vol. 82(2), pages 295-298, May.
    6. Gerrard, Bill, 1995. "The Scientific Basis of Economics: A Review of the Methodological Debates in Economics and Econometrics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 42(2), pages 221-235, May.
    7. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    8. Raynold, Prosper, 1994. "The impact of government deficits when credit markets are imperfect: Evidence from the interwar period," Journal of Macroeconomics, Elsevier, vol. 16(1), pages 55-76.
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