Do US federal revenues and expenditures respond asymmetrically to budgetary disequilibria?

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Abstract

We follow Ewing et al. (2006) and examine the US federal revenue-expenditure nexus in an Error-Correction Model (ECM) allowing for asymmetric adjustment. Symmetric adjustment is rejected by data covering 1959.3 to 2007.4. Depending on whether a Threshold Autoregression (TAR) or Momentum Threshold Autoregression (M-TAR) model is employed, the estimated asymmetry is very different. We argue that there is little justification for preferring one model over the other and the concepts of 'worsening' or 'improving' budgets are model-contingent in important ways. Taking this into account, the results across models need not be contradictory.

Original languageEnglish
Pages (from-to)749-752
Number of pages4
JournalApplied Economics Letters
Volume18
Issue number8
DOIs
StatePublished - 2011

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