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Fiscal deficits under financial pressure and insolvency: Evidence for Italy, Greece and Spain

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  • Trachanas, Emmanouil
  • Katrakilidis, Constantinos

Abstract

This article attempts to re-evaluate the sustainability of the fiscal deficit as well as the long-run macroeconomic relationship between government spending and revenues for three South-European economies under financial market pressure and insolvency; Italy, Greece and Spain. The empirical analysis uses annual data from 1970 to 2010 and employs various cointegration techniques to account for possible linear and nonlinear effects in fiscal policy actions. The evidence for all three countries suggests that, allowing for structural break, (i) the fiscal deficits are weakly sustainable in the long-run, (ii) the spend-and-tax hypothesis is supported and (iii) the budgetary adjustment process is asymmetric in Italy and Spain.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 35 (2013)
Issue (Month): 5 ()
Pages: 730-749

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Handle: RePEc:eee:jpolmo:v:35:y:2013:i:5:p:730-749

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Fiscal policy; Budget deficit; Sustainability; Revenues; Expenditures; Structural breaks; Threshold cointegration;

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References

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Cited by:
  1. Buiatti, Cesare & Carmeci, Gaetano & Mauro, Luciano, 2014. "The origins of the public debt of Italy: Geographically dispersed interests?," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 43-62.
  2. Artzrouni, Marc & Tramontana, Fabio, 2013. "The debt trap: a two-compartment train wreck," MPRA Paper 47578, University Library of Munich, Germany.

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