Threshold Effects in the US Budget Deficit

Cipollini AndreaFattouh BassamArestis Philip
CEIS Research Paper
We contribute to the debate on whether the US large federal budget deficits are sustainable in the long run. We model the US government deficit per capita as a threshold autoregressive process. We find evidence that the US budget deficit is sustainable in the long run and that economic policymakers will only intervene to reduce per capita deficit when it reaches a certain threshold.
Number: 18
Keywords: Government Deficit, Threshold, Unit Root
JEL codes: C32, E62
Date: Friday 23 May 2003
Revision Date: Friday 23 May 2003