Working Papers, Department of Economics, Lund University
Göran Hjelm and Martin W Johansson
Structural Change in Fiscal Policy and The Permanence of Fiscal Contractions - The Case of Denmark and Ireland.
Abstract: Instead of relying on descriptive statistics to evaluate
the permanence of a fiscal contraction, this paper suggests that this issue
should be studied using tests for structural breaks in cointegrating
relationships between taxes and spending. We label a fiscal contraction as
'permanent' if a structural break is detected during the contraction
period. Applying Gregory and Hansen's (1996) test on Danish and Irish data
and find that the fiscal contraction in Ireland (1987-1989) induced a
structural change in fiscal policy while the results from the Danish data
do not imply such a regime shift. We discuss possible explanations for this
Keywords: Fiscal Policy; Fiscal contraction; Cointegration; Structural breaks; (follow links to similar papers)
JEL-Codes: C22; E62; H30; (follow links to similar papers)
12 pages, March 21, 2002
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