Threshold Effects in the U.S. Budget Deficit
Posted: 23 Aug 2005
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
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