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Threshold Effects in the U.S. Budget DeficitPhilip ArestisUniversity of Cambridge - Department of Land Economy Andrea CipolliniUniversità degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN) Bassam FattouhUniversity of London - School of Oriental and African Studies (SOAS); University of London - Centre for Financial and Management Studies (CeFIMS) Economic Inquiry, Vol. 42(2), pp. 214-222, 2004 Abstract: We contribute to the debate on whether the large U.S. federal budget deficits are sustainable in the long run. We model the U.S. government deficit per capita as a threshold autoregressive process. We find evidence that the U.S. budget deficit is sustainable in the long run and that economic policymakers will intervene to reduce per capita deficit only when it reaches a certain threshold.
Keywords: Government Deficit, Threshold, Unit Root JEL Classification: C32, E62 Accepted Paper SeriesDate posted: August 23, 2005Suggested CitationContact Information
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