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Appraising fiscal reaction functions

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Author Info

  • António Afonso

    ()
    (ISEG/TULisbon; UECE; European Central Bank)

  • João Jalles

    ()
    (University of Aberdeen, Business School; European Central Bank)

Abstract

We estimate fiscal responses for an OECD panel, accounting for cross-country interactions, and also estimate the fiscal responses in a panel VAR. We find that governments have increased primary balances when facing higher government indebtedness, implying a Ricardian fiscal regime, while primary balances have improved to reduce government debt. These results hold for the single regression panel analysis and for the panel VAR.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 4 ()
Pages: 3320-3330

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Handle: RePEc:ebl:ecbull:eb-11-00815

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Keywords: fiscal regimes; Panel VAR; cross-sectional dependence;

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References

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  1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  2. Francis Teal & Markus Eberhardt, 2009. "Econometrics for Grumblers: A New Look at the Literature on Cross-Country Growth Empirics," Economics Series Working Papers CSAE WPS/2009-07, University of Oxford, Department of Economics.
  3. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  4. Pesaran, M. Hashem & Smith, Ron, 1995. "The role of theory in econometrics," Journal of Econometrics, Elsevier, vol. 67(1), pages 61-79, May.
  5. Afonso, António, 2005. "Ricardian fiscal regimes in the European Union," Working Paper Series 0558, European Central Bank.
  6. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  7. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
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Cited by:
  1. Afonso, António & Jalles, João Tovar, 2012. "Revisiting fiscal sustainability: panel cointegration and structural breaks in OECD countries," Working Paper Series 1465, European Central Bank.
  2. Truong Nguyen, 2013. "Estimating India's Fiscal Reaction Function," ASARC Working Papers 2013-05, The Australian National University, Australia South Asia Research Centre.

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