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Test of Fiscal Sustainability and Causality Hypotheses for Switzerland

  • Silika Prohl
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    This paper examines the causality between the Swiss federal governments revenue and expenditure over the 1900 to 2002 period by estimating the short- and longrun relation within an error-correction approach that places more emphasis on the long-run relation as a source of the causal link. The results suggest both that the fiscal policy is consistent with the governmental budget constraint - revenue and expenditure are cointegrated, and revenue cause expenditure and vice versa. There is also evidence that World War II had a significant impact on the stability of the cointegrating relation between revenue and expenditure.

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    Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

    Volume (Year): 146 (2010)
    Issue (Month): II (June)
    Pages: 481-506

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    Handle: RePEc:ses:arsjes:2010-ii-3
    Contact details of provider: Postal: c/o SNB/BNS, Börsenstrasse 15, PO Box 2800, CH-8022 Zürich
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    Fax: +41 (0)44 631 39 01
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    1. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
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    5. Mohammad Hashem Pesaran & Richard J Smith & Yongcheol Shin, 1999. "Structural analysis of vector error correction models with exogenous I(1) variables," ESE Discussion Papers 38, Edinburgh School of Economics, University of Edinburgh.
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    7. Henning Bohn, . "Budget Balance Through Revenue or Spending Adjustments? Some Historical Evidence for the United States," Rodney L. White Center for Financial Research Working Papers 28-89, Wharton School Rodney L. White Center for Financial Research.
    8. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
    9. Saikkonen, Pentti & Lütkepohl, Helmut, 2001. "Testing for the cointegrating rank of a VAR process with structural shifts," SFB 373 Discussion Papers 1998,82, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    10. Alho, Juha M. & Vanne, Reijo, 2006. "On predictive distributions of public net liabilities," International Journal of Forecasting, Elsevier, vol. 22(4), pages 725-733.
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    15. Henning Bohn, . "Budget Balance Through Revenue or Spending Adjustments ? Some Historical Evidence for the United States (Reprint 013)," Rodney L. White Center for Financial Research Working Papers 03-91, Wharton School Rodney L. White Center for Financial Research.
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