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Assessing long-term fiscal developments: A new approach

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  • Afonso, António
  • Agnello, Luca
  • Furceri, Davide
  • Sousa, Ricardo M.

Abstract

We use a new approach to assess long-term fiscal developments. By analyzing the time-varying behaviour of the two components of government spending and revenue - responsiveness and persistence -, a feature not captured by automatic stabilisers, we are able to infer about the sources of fiscal deterioration (improvement). Drawing on quarterly data, we estimate recursively these components within a system of government revenue and spending equations using a Three-Stage Least Square method for eight European Union countries plus the US. The results suggest that significant changes in the fiscal stance (including those related to the current crisis) are reflected in the estimates of persistence and responsiveness.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 30 (2011)
Issue (Month): 1 (February)
Pages: 130-146

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Handle: RePEc:eee:jimfin:v:30:y:2011:i:1:p:130-146

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Fiscal deterioration Fiscal sustainability;

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References

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  1. de Castro Fernández, Francisco & Hernández de Cos, Pablo, 2006. "The economic effects of exogenous fiscal shocks in Spain: a SVAR approach," Working Paper Series 0647, European Central Bank.
  2. Bohn, Henning, 2007. "Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1837-1847, October.
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  4. Afonso, António & Agnello, Luca & Furceri, Davide, 2008. "Fiscal policy responsiveness, persistence and discretion," Working Paper Series 0954, European Central Bank.
  5. Ricardo M. Sousa & António Afonso, 2008. "The Macroeconomic Effects of Fiscal Policy," NIPE Working Papers 22/2008, NIPE - Universidade do Minho.
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Citations

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Cited by:
  1. Carine Bouthevillain & John Caruana & Cristina Checherita & Jorge Cunha & Esther Gordo & Stephan Haroutunian & Amela Hubic & Geert Langenus & Bernhard Manzke & Javier J. Pérez & Pietro Tommasino, 2009. "Pros and Cons of various fiscal measures to stimulate the economy," BCL working papers 40, Central Bank of Luxembourg.
  2. Mirko Abbritti & Salvatore Dell'Erba & Antonio Moreno & Sergio Sola, 2013. "Global Factors in the Term Structure of Interest Rates," IMF Working Papers 13/223, International Monetary Fund.
  3. Luca Agnello & Vítor Castro & Ricardo M. Sousa, 2012. "What determines the duration of a fiscal consolidation program?," NIPE Working Papers 17/2012, NIPE - Universidade do Minho.
  4. António Afonso & Luca Agnello & Davide Furceri, 2010. "Fiscal policy responsiveness, persistence, and discretion," Public Choice, Springer, vol. 145(3), pages 503-530, December.
  5. Niklas Potrafke & Markus Reischmann, 2012. "Fiscal Equalization Schemes and Fiscal Sustainability," CESifo Working Paper Series 3948, CESifo Group Munich.
  6. Afonso, António & Martins, Manuel M.F., 2010. "Level, slope, curvature of the sovereign yield curve, and fiscal behaviour," Working Paper Series 1276, European Central Bank.
  7. Emilia Câmpeanu & Andreea Stoian, 2010. "Fiscal Policy Reaction in the Short Term for Assessing Fiscal Sustainability in the Long Runin Central and Eastern European Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(6), pages 501-518, December.
  8. Ricardo M. Sousa & António Afonso, 2009. "Assessing Long-Term Fiscal Developments: Evidence from Portugal," NIPE Working Papers 1/2009, NIPE - Universidade do Minho.

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