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Test of Fiscal Sustainability and Causality Hypotheses for Switzerland

  • Silika Prohl

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
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  1. H. Lütkepohl & P. Saikkonen, 1997. "Testing for the Cointegrating Rank of a VAR Process with a Time Trend," SFB 373 Discussion Papers 1997,79, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. James E. Payne, 2003. "A Survey of the International Empirical Evidence on the Tax-Spend Debate," Public Finance Review, SAGE Publishing, vol. 31(3), pages 302-324, May.
  3. 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.
  4. Lutkepohl, Helmut & Terasvirta, Timo & Wolters, Jurgen, 1999. "Investigating Stability and Linearity of a German M1 Money Demand Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 511-25, Sept.-Oct.
  5. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  6. Alho, Juha M. & Vanne, Reijo, 2006. "On predictive distributions of public net liabilities," International Journal of Forecasting, Elsevier, vol. 22(4), pages 725-733.
  7. Saikkonen, Pentti & Lutkepohl, Helmut, 2000. "Testing for the Cointegrating Rank of a VAR Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 451-64, October.
  8. Saikkonen, Pentti & L tkepohl, Helmut, 2000. "Testing For The Cointegrating Rank Of A Var Process With An Intercept," Econometric Theory, Cambridge University Press, vol. 16(03), pages 373-406, June.
  9. 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.
  10. 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.
  11. Ram, Rati, 1988. "A Multicountry Perspective on Causality between Government Revenue and Government Expenditure," Public Finance = Finances publiques, , vol. 43(2), pages 261-70.
  12. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
  13. Hoover, K.D. & Sheffrin, S.M., 1990. "Causation, Spending And Taxes: Sand In The Sandbox Or Tax Collector For The Welfare State," Papers 67, California Davis - Institute of Governmental Affairs.
  14. Johansen, Soren, 1995. "Identifying restrictions of linear equations with applications to simultaneous equations and cointegration," Journal of Econometrics, Elsevier, vol. 69(1), pages 111-132, September.
  15. 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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