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IS THE BUDGET DEFICIT “TOO LARGE”?: SOME FURTHER EVIDENCE
Author(s) -
Tanner Evan,
Liu Peter
Publication year - 1994
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1994.tb01347.x
Subject(s) - economics , solvency , cointegration , deficit spending , revenue , federal budget , macroeconomics , great recession , structural break , recession , government revenue , work (physics) , fiscal policy , government (linguistics) , government budget , monetary economics , econometrics , keynesian economics , debt , public finance , finance , fiscal year , linguistics , philosophy , mechanical engineering , market liquidity , engineering
The size of the federal budget deficit has alarmed politicians and the general public both. Following recent work, we examine the long‐run solvency of the U.S. government by testing for cointegration of federal expenditures and revenues. We include a break term in the cointegrating recession for 1981 to capture a shift in the fiscal process in the first Reagan administration. Tests show the break to be significant; and with the break, in contrast to earlier work, expenditures and revenues are cointegrated with a coefficient of one. Thus, we find the deficit to be stationary and so potentially sustainable.