1. The change in aggregate budget behavior in the 1990s: a cointegration-error correction model analysis
- Author
-
Paul R. Blackley
- Subjects
Error correction model ,Macroeconomics ,Economics and Econometrics ,Deficit spending ,Sociology and Political Science ,Cointegration ,Aggregate (data warehouse) ,Structural break ,Econometrics ,Government revenue ,Economics ,Federal budget ,Public finance - Abstract
Using data from 1955 to 2005, the estimates presented imply a long-run equilibrium relation between U.S. federal government revenues and expenditures, but one that is consistent with a continuous expansion in the deficit. There is evidence of a structural break that led to deficit reduction and surpluses from 1996 to 2001, which coincides with several noteworthy economic and political outcomes including the only time when a Democratic administration and Republican Congress were in power simultaneously. The results support the view of a long-run deficit bias in federal budget decision-making. Absent behavior similar to that of the late 1990s, a change in budget rules may be needed to avoid the large deficits forecasted under current law.
- Published
- 2008
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