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Government Expenditures and Revenues: Evidence from Asymmetric Modeling

  • Bradley T. Ewing

    ()

    (Texas Tech University)

  • James E. Payne

    ()

    (Department of Economics, Illinois State University)

  • Mark A. Thompson

    ()

    (Institute for Economic Advancement, University of Arkansas at Little Rock)

  • Omar M. Al-Zoubi

    ()

    (Department of Economics, Texas Tech University)

In this article, we examine the relationship between U.S. federal revenues and expenditures while relaxing the assumption of a symmetric adjustment process underlying the conventional cointegration and error correction model. Threshold autoregression and momentum threshold autoregression models are used to ascertain the empirical link between the two variables of the budgetary process. Our results suggest that revenues and expenditures are cointegrated and that the adjustment process of the budgetary disequilibrium is asymmetric. The application of the asymmetric error correction model indicates that revenues and expenditures respond to the long-run requirements of the budgetary balance only when the budget is worsening.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 73 (2006)
Issue (Month): 1 (July)
Pages: 190–200

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Handle: RePEc:sej:ancoec:v:73:1:y:2006:p:190-200
Contact details of provider: Web page: http://www.southerneconomic.org/

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