Most empirical evidence suggests that the sustainability hypothesis, stating that government revenues and expenditures should cointegrate with a unit slope on expenditures, does not hold within the European Union, a finding at odds with many theoretical models. This paper argues that these...

This study reexamines the sustainability hypothesis by testing whether government revenues and expenditures for eight rich OECD countries between 1977Q1 and 2005Q4 are cointegrated. For this purpose, a nonstationary panel data approach is adopted, which is general enough to permit for...

The ‘‘decentralization hypothesis’’ in the theory of fiscal federalism suggests that fiscal decentralization may have a dampening effect on government size, implying that government intrusion into the economy can be restricted if government responsibilities for taxes...