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Public Debt, the Unit Root Hypothesis and Structural Breaks: A Multi-Country Analysis

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  • MERIH UCTUM
  • THOM THURSTON
  • REMZI UCTUM

Abstract

We assess fiscal performances in G7 and selected Latin American and Asian countries. We consider two questions: (i) Have public finances been sustainable? (ii) Do countries follow more restrictive fiscal policies when debt starts to rise? We find that: (i) the traditional unit root tests often overlook the corrective actions taken by many governments; controlling for structural breaks changes the non-stationarity results dramatically among the three groups; (ii) estimation of a reaction function for governments, expanded by incorporating structural breaks, provides further evidence for significant active anti-debt policies among G7 countries, and to a lesser extent in the other regions. Copyright (c) The London School of Economics and Political Science 2006.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 73 (2006)
Issue (Month): 289 (02)
Pages: 129-156

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Handle: RePEc:bla:econom:v:73:y:2006:i:289:p:129-156

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Cited by:
  1. Jan Hanousek & Evzen Kocenda, 2010. "Public Investment and Fiscal Performance in New EU Member States," William Davidson Institute Working Papers Series wp1006, William Davidson Institute at the University of Michigan.
  2. Tomomi Miyazaki, 2014. "Fiscal Reform and Fiscal Sustainability: Evidence from Australia and Sweden," Discussion Papers 1407, Graduate School of Economics, Kobe University.
  3. Jan Hanousek & Evžen Kočenda, 2011. "Public Investment and Fiscal Performance in the New EU Member States," Fiscal Studies, Institute for Fiscal Studies, vol. 32(1), pages 43-71, 03.
  4. Jan Hanousek & Evžen Kočenda, 2011. "Corruption and Economic Freedom Links to Public Finance and Investment in New EU Members," Politická ekonomie, University of Economics, Prague, vol. 2011(3), pages 310-328.
  5. Bhatt, Antra, 2010. "Revisiting Indicators of Public Debt Sustainability: Capital Expenditure, Growth and Public Debt in India," MPRA Paper 27422, University Library of Munich, Germany.
  6. Gabriella Deborah Legrenzi & Costas Milas, 2010. "Spend-and-Tax Adjustments and the Sustainability of the Government's Intertemporal Budget Constraint," CESifo Working Paper Series 2926, CESifo Group Munich.
  7. Gnegne, Yacouba & Jawadi, Fredj, 2013. "Boundedness and nonlinearities in public debt dynamics: A TAR assessment," Economic Modelling, Elsevier, vol. 34(C), pages 154-160.
  8. Kocenda, Evzen & Kutan, Ali M. & Yigit, Taner M., 2008. "Fiscal convergence in the European Union," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 319-330, December.

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