New paper: “The On-Budget Effects of Trust Funds Surpluses”

The Private Enterprise Research Center at Texas A&M University released

“The On-Budget Effects of Trust Funds Surpluses”
Liqun Liu
Private Enterprise Research Center
Andrew J. Rettenmaier
Private Enterprise Research Center
Thomas Saving
Texas A&M University
Zijun Wang
Private Enterprise Research Center

Theoretical models constructed in this paper predict that the on-budget surplus decreases, by an amount less than dollar-for-dollar, in response to an increase in the trust fund surplus. While consistent with the estimates based on cross-sectional data, the prediction is at odds with the estimates based on time series data. The paper then extends the existing time series analyses by introducing a length-of-lag dimension in differencing. By choosing alternative lengths of lag in differencing or not differencing at all, we not only are able to reproduce the range of existing time series estimates, but also generate estimates that are in line with the theoretical prediction. Using variables differenced with the three-year lag, we find that a one-dollar increase in the trust fund surplus causes the on-budget surplus to decrease by an amount of $0.62 - $0.79.

Click 1308 to view the paper in pdf format.