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Is the Budget Deficit "Too Large"?: Some Further Evidence

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  • Tanner, Evan
  • Liu, Peter

Abstract

The size of the federal budget deficit has alarmed politicians and the general public both. Following recent work, the authors examine the long-run solvency of the U.S. government by testing for cointegration of federal expenditures and revenues. They include a break term in the cointegrating recession for 1981 to capture a shift in the fiscal process in the first Reagan administration. Tests show the break to be significant; and with the break, in contrast to earlier work, expenditures and revenues are cointegrated with a coefficient of one. Thus, the authors find the deficit to be stationary and so potentially sustainable. Copyright 1994 by Oxford University Press.

Suggested Citation

  • Tanner, Evan & Liu, Peter, 1994. "Is the Budget Deficit "Too Large"?: Some Further Evidence," Economic Inquiry, Western Economic Association International, vol. 32(3), pages 511-518, July.
  • Handle: RePEc:oup:ecinqu:v:32:y:1994:i:3:p:511-18
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