Test of fiscal sustainability and causality hypotheses for Switzerland
- Silika Prohl1
© Swiss Society of Economics and Statistics 2010
Published: 11 January 2010
This paper examines the causality between the Swiss federal governments revenue and expenditure over the 1900 to 2002 period by estimating the short- and long-run relation within an error-correction approach that places more emphasis on the long-run relation as a source of the causal link. The results suggest both that the fiscal policy is consistent with the governmental budget constraint — revenue and expenditure are cointegrated, and revenue cause expenditure and vice versa. There is also evidence that World War II had a significant impact on the stability of the cointegrating relation between revenue and expenditure.