Working Papers, Department of Economics, Lund University
The Dynamic Response of the Budget Balance to Tax, Spending and Output Shocks: Does Model Specification Matter?
Abstract: This paper estimates how the US budget responds to shocks
in taxes, spending and output. In particular, we consider the dynamic
adjustment of the two budget components (taxes and spending) to such
shocks. The recently developed Generalized Impulse Response Function, which
takes the historical distribution of the residuals into account, is
applied. We select the 'correct' specification, estimate two VAR and two
VEC models and compare the results. Our chosen specification suggests that
tax, spending and output shocks generate deficits in the long run while the
tax and output shocks generate a surplus in the short run. Moreover, model
specification matters indeed.
Keywords: Generalized impulse response function; Model specification; VAR; Budget deficit; Fiscal variables; (follow links to similar papers)
JEL-Codes: C32; C52; E62; (follow links to similar papers)
20 pages, February 2, 2001
Before downloading any of the electronic versions below
you should read our statement on
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
Questions (including download problems) about the papers in this series should be directed to David Edgerton ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Design by Joachim Ekebom