Previous research has shown that the intertemporal solvency condition is equivalent to the cointegration of either (1) the interest-inclusive government spendings and tax revenue or (2) the interest-exclusive government spendings, tax revenue and government outstanding debt. This note examines the intertemporal solvency condition using a maximum likelihood cointegration test. Results show that the solvency condition for the US government is satisfied only if a break is included in the process.
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Liu et al. (1995) studied this question.
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