Threshold Effects in the U.S. Budget Deficit
University of Cambridge - Department of Land Economy
Università 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)
University 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
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, E62Accepted Paper Series
Date posted: August 23, 2005
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