Advanced Search
MyIDEAS: Login to save this article or follow this journal

Assessing Effective Sustainability of Fiscal Policy within the G-7

Contents:

Author Info

  • Feve, Patrick
  • Henin, Pierre-Yves

Abstract

This paper introduces a new unit root test, using "Feedback Covariates", in order to test for sustainability of fiscal policy within the G-7.Non-sustainability is considered as the null hypothesis of both a unit root in the debt process and the nullity of a deficit correction in response to inherited debt. We characterize the distribution of the FADF (Feedback Augmented Dickey-Fuller) statistics under both the null and the near unit root alternative and we compare the FADF statistics with the ones related to single equation approaches. This test is applied to public debt normalized by GDP, rather than by a discount factor, consistently with a definition of effective sustainability, which focusses on policy implications. We are still unable to reject the null hypothesis of non-sustainability for four countries. Nevertheless, our results confirm the potential of our approach in terms of power gains aind show that standard unit root tests lead to accept too often the null hypothesis of non-stationnarity.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=obes&volume=62&issue=2&year=2000&part=null
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 62 (2000)
Issue (Month): 2 (May)
Pages: 175-95

as in new window
Handle: RePEc:bla:obuest:v:62:y:2000:i:2:p:175-95

Contact details of provider:
Postal: Manor Rd. Building, Oxford, OX1 3UQ
Email:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0305-9049
More information through EDIRC

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=0305-9049

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Buiter, Willem H. & Patel, Urjit R., 1992. "Debt, deficits, and inflation: An application to the public finances of India," Journal of Public Economics, Elsevier, Elsevier, vol. 47(2), pages 171-205, March.
  2. Artis, M. & Marcellino, M., 1998. "Fiscal Solvency and Fiscal Forecasting in Europe," Economics Working Papers, European University Institute eco98/2, European University Institute.
  3. Wickens, M. R. & Uctum, Merih, 1993. "The sustainability of current account deficits : A test of the US intertemporal budget constraint," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 17(3), pages 423-441, May.
  4. Bharat Trehan & Carl E. Walsh, 1987. "Common trends, the government's budget constraint, and revenue smoothing," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 87-11, Federal Reserve Bank of San Francisco.
  5. Hansen, Bruce E., 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 11(05), pages 1148-1171, October.
  6. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 808-19, September.
  7. repec:cup:etheor:v:10:y:1994:i:3-4:p:672-700 is not listed on IDEAS
  8. Graham Elliott & James H. Stock, 1992. "Inference in Time Series Regression When the Order of Integration of a Regressor is Unknown," NBER Technical Working Papers 0122, National Bureau of Economic Research, Inc.
  9. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 29(3), pages 429-45, July.
  10. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220 National Bureau of Economic Research, Inc.
  11. Robert Holzmann & Yves Hervé & Roland Demmel, 1996. "The maastricht fiscal criteria: Required but ineffective?," Empirica, Springer, Springer, vol. 23(1), pages 25-58, February.
  12. Peter C.B. Phillips, 1986. "Towards a Unified Asymptotic Theory for Autoregression," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 782R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1986.
  13. Bohn, H., 1990. "The Sutainability Of Budget Deficits In A Stochastic Economy," Weiss Center Working Papers, Wharton School - Weiss Center for International Financial Research 6-90, Wharton School - Weiss Center for International Financial Research.
  14. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(4), pages 409-17, October.
  15. repec:cup:etheor:v:11:y:1995:i:5:p:1148-71 is not listed on IDEAS
  16. Peter C.B. Phillips & Bruce E. Hansen, 1988. "Statistical Inference in Instrumental Variables," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 869R, Cowles Foundation for Research in Economics, Yale University, revised Apr 1989.
  17. repec:cup:etheor:v:11:y:1995:i:5:p:1131-47 is not listed on IDEAS
  18. David W. Wilcox, 1987. "The substainability of government deficits: implications of the present- value borrowing constraint," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 77, Board of Governors of the Federal Reserve System (U.S.).
  19. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 277-301, March.
  20. Steven A. Symansky & Douglas Laxton & Hamid Faruqee, 1996. "Government Debt, Life-Cycle Income and Liquidity Constrains," IMF Working Papers 96/140, International Monetary Fund.
  21. Hamid Faruqee & Douglas Laxton & Steven Symansky, 1997. "Government Debt, Life-Cycle Income, and Liquidity Constraints: Beyond Approximate Ricardian Equivalence," IMF Staff Papers, Palgrave Macmillan, vol. 44(3), pages 374-382, September.
  22. Cavanagh, Christopher L. & Elliott, Graham & Stock, James H., 1995. "Inference in Models with Nearly Integrated Regressors," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 11(05), pages 1131-1147, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. 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.
  2. J. Boissinot & C. L'Angevin & B. Monfort, 2004. "Public Debt Sustainability: Some Results on the French Case," Documents de Travail de la DESE - Working Papers of the DESE, Institut National de la Statistique et des Etudes Economiques, DESE g2004-10, Institut National de la Statistique et des Etudes Economiques, DESE.
  3. Chen, Shyh-Wei, 2014. "Testing for fiscal sustainability: New evidence from the G-7 and some European countries," Economic Modelling, Elsevier, Elsevier, vol. 37(C), pages 1-15.
  4. Georgios Chortareas & George Kapetanios & Merih Uctum, 2003. "A Nonlinear Approach to Public Finance Sustainability in Latin America," Working Papers, Queen Mary, University of London, School of Economics and Finance 486, Queen Mary, University of London, School of Economics and Finance.
  5. Baharumshah, Ahmad Zubaidi & Lau, Evan, 2007. "Regime changes and the sustainability of fiscal imbalance in East Asian countries," Economic Modelling, Elsevier, Elsevier, vol. 24(6), pages 878-894, November.
  6. Adrien Verdelhan & Sophie Garcia, 2001. "Le policy-mix de la zone euro. Une évaluation de l'impact des chocs monétaires et budgétaires," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 148(2), pages 23-40.
  7. António Afonso & João Tovar Jalles, 2011. "A Longer-run Perspective on Fiscal Sustainability," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2011/17, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  8. Afonso, António & Jalles, João Tovar, 2012. "Revisiting fiscal sustainability: panel cointegration and structural breaks in OECD countries," Working Paper Series, European Central Bank 1465, European Central Bank.
  9. António Afonso & Christophe Rault, 2007. "What We Really Know about Fiscal Sustainability in the EU? A Panel Data Diagnostic," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2007/20, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  10. Antonio Afonso, 2004. "Fiscal Sustainability: the Unpleasant European Case," Money Macro and Finance (MMF) Research Group Conference 2004, Money Macro and Finance Research Group 57, Money Macro and Finance Research Group.
  11. Wolfgang Kitterer, 2007. "Nachhaltige Finanz- und Investitionspolitik der Bundesländer," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 8(s1), pages 53-83, 04.
  12. Gerrit B. Koester & Christoph Priesmeier, 2013. "Does Wagner´s Law Ruin the Sustainability of German Public Finances?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 69(3), pages 256-288, September.
  13. Evan Tanner & Issouf Samaké, 2006. "Probabilistic Sustainability of Public Debt," IMF Working Papers 06/295, International Monetary Fund.
  14. Massimo Antonini & Kevin Lee & Jacinta Pires, . "Public Sector Debt Dynamics: The Persistence and Sources of Shocks to Debt in Ten EU Countries," Discussion Papers 11/08, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  15. Samuel S Jibao & Niek Schoeman & Ruthira Naraidoo, 2010. "Fiscal Regime Changes and the Sustainability of Fiscal Imbalance in South Africa: A Smooth Transition Error-Correction Approach," Working Papers 201023, University of Pretoria, Department of Economics.
  16. Evan Lau & Ahmad Zubaidi Baharumshah & Shazali Abu Mansor & Chin-Hong Puah, 2009. "Testing Stationarity of Budgetary Position in Developing Countries," International Econometric Review (IER), Econometric Research Association, Econometric Research Association, vol. 1(2), pages 77-87, April.
  17. António Afonso, 2000. "Fiscal policy sustainability: some unpleasant European evidence," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2000/12, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  18. Evan Lau & Ahmad Zubaidi Baharumshah, 2005. "Assessing The Mean Reversion Behavior Of Fiscal Policy: The Case Of Asian Countries," Macroeconomics, EconWPA 0504002, EconWPA.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:obuest:v:62:y:2000:i:2:p:175-95. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.