The size of the nonstationary component and its effect on tests for unit roots

Liu, P. C.; Praschnik, Jack

doi:10.1007/bf02925529

Cited by 2 publications

(2 citation statements)

References 7 publications

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“…The PP test has a null hypothesis that the series is I(1). However, the PP test has been shown to exhibit an inferior small sample performance relative to the ADF test, and therefore should be used only as a complement to other approaches (see, for example, Schwert, 1989;Campbell & Perron, 1991;Agiakloglou & Newbold, 1992;DeJong et al, 1992;and Liu & Praschnik, 1993).…”

Section: Phillips and Perron Testmentioning

confidence: 99%

Fiscal Policy and Optimal Taxation in Sierra Leone: Testing for Tax Smoothing Hypothesis

Bonzu¹

2022

IJEF

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This paper empirically investigate whether the budget imbalances in Sierra Leone over the review period is consistent with optimal tax policy. The procedure involves testing if tax smoothing hypothesis hold for Sierra Leone. In this regard, three different empirical approaches were performed. Firstly, I examine the random walk property of the tax rate. The null hypothesis of non-stationarity of tax rate could not be rejected, which implies the tax rate follows random walk. Second, I examined whether changes in tax rate is predictable by regressing changes in tax rate by its own lagged values. The result shows that tax rate is unpredictable, as changes in tax cannot be determined by its lagged values. Finally, a VAR model was employed to examine whether tax rate can be predicted by its own lagged values together with changes in the government spending rate and the growth rate of real GDP. The results indicate that all the variables employed were found not be significant is predicating the tax rate. Overall, all the empirical estimations support the existence of tax smoothing over the sample period and that the budget inbalances over the review period is consistent with optimal tax policy.

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Section: Phillips and Perron Testmentioning

confidence: 99%

Fiscal Policy and Optimal Taxation in Sierra Leone: Testing for Tax Smoothing Hypothesis

Bonzu¹

2022

IJEF

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“…The PP test has a null hypothesis if the series is I(1). However, the PP test was shown to exhibit an inferior small sample performance relative to the ADF test, and therefore should be used only as a complement to other approaches (see for example Schwert (2002), Campbell and Perron (1991), Agiakloglou andNewbold (1992), De Jong et al (1992), and Liu and Praschnik (1993)). The test equation is specified as:…”

Section: Phillips and Perron Testmentioning

confidence: 99%

On the Sustainability of Fiscal Policy in Sierra Leone

Bonzu¹

2022

IBR

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The aim of this paper is to empirically investigates whether Sierra Leone fiscal policy is sustainability. In this regard, I employ different econometric methodologies used in the empirical literature to investigates the sustainability of fiscal policy. The empirical findings that emerged from this study are useful on one hand to creditors, serving as a guide for lending to the government, and, on the other hand to the government, cautioning policymakers to avoid public debt from exploding that could possibly lead to fiscal insolvency and/or debt distress. I start by testing for the stationarity properties of the primary balance, the necessary condition for a sustainable fiscal policy. The findings indicated that Sierra Leone fiscal policy is sustainable under the review period. Next, I test for cointegration relationship between government revenue and government expenditure, the alternative approach to test for a sustainable fiscal policy. On this note, I employ both the Dynamic Ordinary Least Square (DOLS) and the Johansen cointegration techniques. Both approaches confirmed the existence of a cointegration relationship between government revenue and government expenditure. The estimated cointegration coefficients show that fiscal policy during the review period is weakly sustainable and the cointegration between government spending and revenue is positive (but less than one) and statistically significant. This implies that for each percentage point of GDP increase in government expenditure, government revenues increase by less than one percentage point of GDP. Additionally, I proceeded to endogenously account for structural breaks in the cointegration relationship, which is relevant for Sierra Leone, a country that has witnessed significant changes over the years, including the Structural Adjustments Programme (SAP) in the 1980s, tax reforms in the 1990s and 2000s, etc. I found evidence of a significant structural break occurring in 1984. There also exists uni-directional causality running from government revenue to government expenditure. This causality result is in line with the tax-and-spend hypothesis as proposed by Friedman (1978).Finally, I estimate an error correction model and the error correction term shows that the speed of adjustment from the expenditure side works faster than that of the revenue side to correct the fiscal disequilibrium.

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The size of the nonstationary component and its effect on tests for unit roots

Cited by 2 publications

References 7 publications

Fiscal Policy and Optimal Taxation in Sierra Leone: Testing for Tax Smoothing Hypothesis

Fiscal Policy and Optimal Taxation in Sierra Leone: Testing for Tax Smoothing Hypothesis

On the Sustainability of Fiscal Policy in Sierra Leone

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