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Government Expenditures and Revenues: Evidence of Fractional Cointegration in an Asymmetric Modeling

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  • Luis Gil-Alana

Abstract

In this paper, we examine the relationship between the US government expenditures and revenues using a fractional cointegration framework. In doing so, we permit a much richer degree of flexibility in the dynamic adjustment process toward equilibrium than in the classical case of cointegration. Moreover, we relax the assumption of a symmetric adjustment process throughout the use of threshold autoregressive (TAR) and momentum threshold autoregressive (M-TAR) models in the error correction representation of the process. The results show that both individual series are non-stationary I(1) and we do not find evidence of cointegration of any degree. However, if we take into account a structural break at 1973(2), fractional cointegration is found if the underlying process is autocorrelated, especially in the asymmetric modeling. Copyright International Atlantic Economic Society 2009

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  • Luis Gil-Alana, 2009. "Government Expenditures and Revenues: Evidence of Fractional Cointegration in an Asymmetric Modeling," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(2), pages 143-155, May.
    • Handle: RePEc:kap:iaecre:v:15:y:2009:i:2:p:143-155:10.1007/s11294-008-9198-z
    DOI: 10.1007/s11294-008-9198-z
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    More about this item

    Keywords

    Public revenues; Public expenditures; Fractional integration; Asymmetric modeling; Structural breaks; C32; E62; H60;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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