Testing Stationarity of Budgetary Position in Developing Countries

Yıl 2009, Cilt: 1 Sayı: 2, 77 - 87, 01.09.2009

Evan Lau Ahmad Zubaidi Baharumshah Shazali Abu Mansor Chin-Hong Puah

Öz

In this paper, we examine stationarity properties of data on budget deficits for a cluster of twenty-seven developing countries (D-27) for the period spanning 1970 to 2003. It has been argued in the literature that this statistical property correlates well with the economic property of sustainability of the budget deficit. The univariate unit root tests indicated a non-stationary process of I(1) with the exception of three countries. However, the non-stationary properties were rejected when the panel unit roots procedures were adopted. Since panel procedures provide greater power, the statistical evidence favors stationarity. This in turn suggests that budgets deficits in our sample of countries are sustainable, an important conclusion with many real world economic implications. The conflict between single country results and panel results suggests that univariate procedures may lead to the wrong conclusions.

Anahtar Kelimeler

Budgetary Position, Stationarity, Sustainability, Government Intertemporal Budget Constraint

Kaynakça

• Banerjee, A. (1999). Panel Data Unit Roots and Cointegration: An Overview. Oxford Bulletin of Economics and Statistics, 61, 607-629
• Breitung, J. (2000). The Local Power of Some Unit Root Tests for Panel Data. In Advances in Econometrics: Nonstationary Panels, Cointegration in Panels and Dynamics Panels, ed. B. Baltagi, T.B. Fomby and R.C. Hill, 15, 161-178.
• Breitung, J. and M.H. Pesaran (2008). Unit Roots and Cointegration in Panels. In The Econometrics of Panel Data: Fundamentals and Recent Developments in Theory and Practice, ed. L. Matyas and P. Sevestre. Kluwer Academic Publishers, 9, 279-322.
• Bohn, H. (2004). The Sustainability of Fiscal Policy in the United States, unpublished paper.
• Breuer, J.B., R. McNown and M.S. Wallace (2002). Series-specific Unit Root Tests with Panel Data. Oxford Bulletin of Economics and Statistics, 64, 527-546.
• Chalk, N. and R. Hemming (2000). Assessing Fiscal Sustainability in Theory and Practice. IMF Working Paper No.81.
• Chiang, M.-H. and C. Kao (2002). Nonstationary panel time series using NPT 1.3 — A User Guide. Center for Policy Research: Syracuse University.
• Chung, M.K. (2002). Budget Sustainability in the Wake of Economic Crisis in Korea. Journal of Asian Economics, 13, 659-669.
• Cunado, J., L.A. Gil-Alana and F.P. de Gracia (2004). Is the US Fiscal Deficit Sustainable? A Fractional Integrated Approach. Journal of Economics and Business, 56, 501-526.
• Edwards, S. (2002). Debt Relief and Budget Sustainability. NBER Working Paper No. 8939.
• Elliott, G, T.J. Rothenberg and J.H. Stock (1996). Efficient Tests for an Autoregressive Unit Root. Econometrica, 64, 813-836.
• Feve, P. and P.Y. Henin (2000). Assessing Effective Sustainability of Budget Policy within the G-7. Oxford Bulletin of Economics and Statistics, 62, 175-195.
• Fisher, R.A. (1932). Statistical Methods for Research Workers. Oliver and Boyd: Edinburgh.
• Green, C.J., M. J. Holmes and T. Kowalski (2001). Poland: A Successful Transition to Budget Sustainability? Emerging Market Review, 2, 160-182.
• Hadri, K. (2000). Testing for Stationarity in Heterogeneous Panel Data. Econometrics Journal, 3, 148-161.
• Hamilton, J.D. and M.A. Flavin (1986). On the Limitations of Government Borrowing: A Framework for Empirical Testing. American Economic Review, 76, 808-819.
• Harris, R.D.F. and E. Tzavalis (1999). Inferences for Unit Roots in Dynamic Panels where the Time Dimension is Fixed. Journal of Econometrics, 91, 201-226.
• Im, K.S., M.H. Pesaran and Y. Shin (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115, 53-74.
• Karlsson, S and M. Lothgren (2000). On the Power and Interpretation of Panel Unit Root Tests, Economics Letters, 66, 249-255.
• Kremers, J.J.M. (1989). US Federal Indebtedness and the Conduct of Budget Policy. Journal of Monetary Economics, 23, 219-238.
• Kwiatkowski, D., P.C.B. Phillips, P. Schmidt and Y. Shin (1992). Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root. How sure are we that Economic Time Series have a Unit Root? Journal of Econometrics, 54, 159-178.
• MacKinnon, J.G. (1996). Numerical Distribution Functions for Unit Root and Cointegration Tests. Journal of Applied Econometrics, 11, 601-618.
• Maddala, G.S. and S. Wu. (1999). A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bulletin of Economics and Statistics, 61, 631-652.
• Makrydakis, S., E. Tzavalis and A. Balfoussias (1999). Policy Regime Changes and the Long- Run Sustainability of Budget Policy: An Application to Greece. Economic Modelling, 16, 71-86.
• Newey, W. and K. West (1987). A Simple Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix. Econometrica, 55, 703-708.
• Radulescu, D.M. (2003). An Assessment of Budget Sustainability in Romania. Post- Communist Economies, 15, 259-275.
• Said, E.S. and D.A. Dickey (1984). Testing for Unit Roots in Autoregressive-Moving Average Models of Unknown Order. Biometrika, 71, 599-607.
• Taylor, M. and L. Sarno (1998). The Behavior of Real Exchange Rates During the Post- Bretton Woods Period. Journal of International Economics, 46, 281-312.
• Trehan, B. and C.E. Walsh (1988). Common Trends, the Government Budget Constraint and Revenue Smoothing. Journal of Economics Dynamics and Control, 12, 425-444.
• Uctum, M. and M. Wickens (2000). Debt and Deficit Ceilings and Sustainability of Budget Policies: An Intertemporal Analysis. Oxford Bulletin of Economics and Statistics, 62, 197-222.
• Vandaele, W. (1983). Applied Time Series and Box-Jenkins Models. New York: Academic Press.
• Wilcox, D.W. (1989). The Sustainability of Government Deficits: Implications of the Present Value Borrowing Constraint. Journal of Money, Credit and Banking, 21, 291-306.