Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence

Arcade Ndoricimpa

doi:doi:10.11648/j.ijefm.20130106.27

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Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence

Arcade Ndoricimpa

Published in International Journal of Economics, Finance and Management Sciences (Volume 1, Issue 6)

Received: 16 December 2013 Published: 10 January 2014

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Abstract

The study examines fiscal sustainability of the East African Community (EAC) Countries by testing for cointegration between government spending and revenue. The study tests for breaks in the long-run relationship between spending and revenue using Bai and Perron’s (2003) method. The presence of regime shifts is then accounted for when testing for cointegration by using testing procedures suggested by Gregory & Hansen (1996) and Hatemi-J (2008) to respectively account for one and two endogenous breaks. The findings show that the presence of regime shifts in the relationship between government spending and government revenue could not be rejected for all the EAC countries. Moreover, both cointegration tests used accounting for regime shifts suggest that government spending and revenue are cointegrated for all the EAC countries thus indicating that fiscal deficits in the EAC countries are sustainable. However, the cointegrating coefficient shows that budget deficits are only weakly sustainable in the long-run for Burundi, Kenya, Tanzania and Uganda and strongly sustainable for Rwanda. The finding implies that for Burundi, Kenya, Tanzania and Uganda, fiscal sustainability needs to be reinforced otherwise the countries are at high risk of default since they spend more than they earn.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 1, Issue 6)
DOI	10.11648/j.ijefm.20130106.27
Page(s)	391-399
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Fiscal Deficits, Government Spending, Government Revenue, Structural Breaks, Cointegration, EAC Countries

References

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APA Style

Arcade Ndoricimpa. (2014). Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence. International Journal of Economics, Finance and Management Sciences, 1(6), 391-399. https://doi.org/10.11648/j.ijefm.20130106.27

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ACS Style

Arcade Ndoricimpa. Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence. Int. J. Econ. Finance Manag. Sci. 2014, 1(6), 391-399. doi: 10.11648/j.ijefm.20130106.27

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AMA Style

Arcade Ndoricimpa. Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence. Int J Econ Finance Manag Sci. 2014;1(6):391-399. doi: 10.11648/j.ijefm.20130106.27

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@article{10.11648/j.ijefm.20130106.27,
  author = {Arcade Ndoricimpa},
  title = {Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {1},
  number = {6},
  pages = {391-399},
  doi = {10.11648/j.ijefm.20130106.27},
  url = {https://doi.org/10.11648/j.ijefm.20130106.27},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20130106.27},
  abstract = {The study examines fiscal sustainability of the East African Community (EAC) Countries by testing for cointegration between government spending and revenue. The study tests for breaks in the long-run relationship between spending and revenue using Bai and Perron’s (2003) method. The presence of regime shifts is then accounted for when testing for cointegration by using testing procedures suggested by Gregory & Hansen (1996) and Hatemi-J (2008) to respectively account for one and two endogenous breaks. The findings show that the presence of regime shifts in the relationship between government spending and government revenue could not be rejected for all the EAC countries. Moreover, both cointegration tests used accounting for regime shifts suggest that government spending and revenue are cointegrated for all the EAC countries thus indicating that fiscal deficits in the EAC countries are sustainable. However, the cointegrating coefficient shows that budget deficits are only weakly sustainable in the long-run for Burundi, Kenya, Tanzania and Uganda and strongly sustainable for Rwanda. The finding implies that for Burundi, Kenya, Tanzania and Uganda, fiscal sustainability needs to be reinforced otherwise the countries are at high risk of default since they spend more than they earn.},
 year = {2014}
}

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TY  - JOUR
T1  - Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence
AU  - Arcade Ndoricimpa
Y1  - 2014/01/10
PY  - 2014
N1  - https://doi.org/10.11648/j.ijefm.20130106.27
DO  - 10.11648/j.ijefm.20130106.27
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 391
EP  - 399
PB  - Science Publishing Group
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UR  - https://doi.org/10.11648/j.ijefm.20130106.27
AB  - The study examines fiscal sustainability of the East African Community (EAC) Countries by testing for cointegration between government spending and revenue. The study tests for breaks in the long-run relationship between spending and revenue using Bai and Perron’s (2003) method. The presence of regime shifts is then accounted for when testing for cointegration by using testing procedures suggested by Gregory & Hansen (1996) and Hatemi-J (2008) to respectively account for one and two endogenous breaks. The findings show that the presence of regime shifts in the relationship between government spending and government revenue could not be rejected for all the EAC countries. Moreover, both cointegration tests used accounting for regime shifts suggest that government spending and revenue are cointegrated for all the EAC countries thus indicating that fiscal deficits in the EAC countries are sustainable. However, the cointegrating coefficient shows that budget deficits are only weakly sustainable in the long-run for Burundi, Kenya, Tanzania and Uganda and strongly sustainable for Rwanda. The finding implies that for Burundi, Kenya, Tanzania and Uganda, fiscal sustainability needs to be reinforced otherwise the countries are at high risk of default since they spend more than they earn.
VL  - 1
IS  - 6
ER  -

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Author Information

Arcade Ndoricimpa

Department of Economics, University of Dar Es Salaam, Dar Es Salaam, Tanzania

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Arcade Ndoricimpa. (2014). Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence. International Journal of Economics, Finance and Management Sciences, 1(6), 391-399. https://doi.org/10.11648/j.ijefm.20130106.27

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ACS Style

Arcade Ndoricimpa. Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence. Int. J. Econ. Finance Manag. Sci. 2014, 1(6), 391-399. doi: 10.11648/j.ijefm.20130106.27

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AMA Style

Arcade Ndoricimpa. Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence. Int J Econ Finance Manag Sci. 2014;1(6):391-399. doi: 10.11648/j.ijefm.20130106.27

Copy | Download

@article{10.11648/j.ijefm.20130106.27,
  author = {Arcade Ndoricimpa},
  title = {Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {1},
  number = {6},
  pages = {391-399},
  doi = {10.11648/j.ijefm.20130106.27},
  url = {https://doi.org/10.11648/j.ijefm.20130106.27},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20130106.27},
  abstract = {The study examines fiscal sustainability of the East African Community (EAC) Countries by testing for cointegration between government spending and revenue. The study tests for breaks in the long-run relationship between spending and revenue using Bai and Perron’s (2003) method. The presence of regime shifts is then accounted for when testing for cointegration by using testing procedures suggested by Gregory & Hansen (1996) and Hatemi-J (2008) to respectively account for one and two endogenous breaks. The findings show that the presence of regime shifts in the relationship between government spending and government revenue could not be rejected for all the EAC countries. Moreover, both cointegration tests used accounting for regime shifts suggest that government spending and revenue are cointegrated for all the EAC countries thus indicating that fiscal deficits in the EAC countries are sustainable. However, the cointegrating coefficient shows that budget deficits are only weakly sustainable in the long-run for Burundi, Kenya, Tanzania and Uganda and strongly sustainable for Rwanda. The finding implies that for Burundi, Kenya, Tanzania and Uganda, fiscal sustainability needs to be reinforced otherwise the countries are at high risk of default since they spend more than they earn.},
 year = {2014}
}

Copy | Download

TY  - JOUR
T1  - Structural Breaks and Fiscal Deficit Sustainability in EAC Countries: Empirical Evidence
AU  - Arcade Ndoricimpa
Y1  - 2014/01/10
PY  - 2014
N1  - https://doi.org/10.11648/j.ijefm.20130106.27
DO  - 10.11648/j.ijefm.20130106.27
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 391
EP  - 399
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20130106.27
AB  - The study examines fiscal sustainability of the East African Community (EAC) Countries by testing for cointegration between government spending and revenue. The study tests for breaks in the long-run relationship between spending and revenue using Bai and Perron’s (2003) method. The presence of regime shifts is then accounted for when testing for cointegration by using testing procedures suggested by Gregory & Hansen (1996) and Hatemi-J (2008) to respectively account for one and two endogenous breaks. The findings show that the presence of regime shifts in the relationship between government spending and government revenue could not be rejected for all the EAC countries. Moreover, both cointegration tests used accounting for regime shifts suggest that government spending and revenue are cointegrated for all the EAC countries thus indicating that fiscal deficits in the EAC countries are sustainable. However, the cointegrating coefficient shows that budget deficits are only weakly sustainable in the long-run for Burundi, Kenya, Tanzania and Uganda and strongly sustainable for Rwanda. The finding implies that for Burundi, Kenya, Tanzania and Uganda, fiscal sustainability needs to be reinforced otherwise the countries are at high risk of default since they spend more than they earn.
VL  - 1
IS  - 6
ER  -

Copy | Download