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Sahar Bahmani
 
''Do budget deficits follow a linear or non-linear path?''
( 2007, Vol. 5 No.14 )
 
 
One method to test whether any government's fiscal policy has been effective in dealing with budget deficits is to test for mean reverting properties of deficits. If deficits-GDP ratio reverts to their mean, or are stationary, that will be an indication of taking corrective measure. Previous studies using standard linear ADF test did not find much support for the stationarity of deficits/GDP ratio. However, when we employ non-linear ADF test and data from 28 countries, we find support for stationarity of the deficits/GDP ratio in 50% of the countries in the sample.
 
 
Keywords: 28 Countries.
JEL: E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
 
Manuscript Received : Sep 16 2007 Manuscript Accepted : Sep 16 2007

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