Authors

• Juncal Cunado (jcunado@unav.es)
  School of Economics and Business Administration, University of Navarra
• Luis A. Gil-Alana (alana@unav.es)
  School of Economics and Business Administration, University of Navarra
• Fernando Pérez de Gracia (fgracia@unav.es)
  School of Economics and Business Administration, University of Navarra

Abstract
The sustainability of fiscal deficits has received in recent years increasing attention from economists. Empirical work has concentrated on both the univariate properties of debt and the cointegration properties of public revenues and expenditures. In this paper, we examine if sustainability of the US fiscal deficit holds by means of studying the univariate properties of the difference between public revenues and expenditures. However, instead of using classical approaches based on I(1) or I(0) integration techniques, we use a methodology based on fractional processes. The results show that the public deficit in the US is an I(d) process with d slightly smaller than 1, implying that fiscal deficit is mean reverting, and thus, sustainable, though the adjustment process towards equilibrium will take a very long time.

Classification JEL:C32; E62; H60

Number of Pages:30

Creation Date:2002-05-01

Number:null/02