Fiscal Trends in Real Economic Aggregates

Abstract

Using cointegration analysis, the authors examine long-term interactions between fiscal variables and the consumption-output and leisure-labor ratios. The motivation is to test if fiscal trends are an independent source of stochastic trends underlying the long-run behavior of real economic aggregates. The authors' results support the presence of fiscal trends and can be interpreted quite well in terms of the equilibrium approach to fiscal policy. They suggest that neoclassical growth models that embed fiscal trends and distinguish between components of government purchases are more consistent with the data than simple real-business-cycle models. Copyright 1995 by Ohio State University Press.