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An Inquiry into the Sustainability of German Fiscal Policy: Some Time-Series Tests

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  • Alfred Greiner

    (University of Augsburg, Germany)

  • Willi Semmler

    (University of Bielefeld, Germany, and the New School for Social Research, New York)

Abstract

Sustainability of public debt has become a major issue in the debate over the success of the European Monetary Union. The authors pursue the question of whether Germany’s fiscal policy is sustainable. With sustainability of a given fiscal policy, the authors refer to a policy that satisfies the intertemporal budget constaint of the government, known as the no-Ponzi game condition. Although this question has been econometrically studied for the United States in many studies, it has not yet been pursued with German time-series data. Using annual data from 1955 to 1994, the results seem to indicate that the intertemporal budget constraint for Germany is not met. In particular, the deficits in the period after 1989 appear to have contributed to that trend. Although the question of whether the latter increase in debt will have a lasting effect is still an important issue, the methodology proposed here may be useful for studying other countries. The authors also briefly discuss the macroeconomic effects of adjustment policies.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 27 (1999)
Issue (Month): 2 (March)
Pages: 220-236

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Handle: RePEc:sae:pubfin:v:27:y:1999:i:2:p:220-236

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Cited by:
  1. Mark J. Holmes & Theodore Panagiotidis & Jesus Otero, 2008. "Are EU budgets stationary?," Discussion Paper Series 2008_07, Department of Economics, University of Macedonia, revised Sep 2008.
  2. Greiner, Alfred & Semmler, Willi, 2000. "Endogenous Growth, Government Debt and Budgetary Regimes," Journal of Macroeconomics, Elsevier, vol. 22(3), pages 363-384, July.
  3. Willi Semmler & Wenlang Zhang, 2004. "Monetary and Fiscal Policy Interactions in the Euro Area," Empirica, Springer, vol. 31(2), pages 205-227, June.
  4. Gang Gong & Alfred Greiner & Willi Semmler, 2001. "Growth Effects of Fiscal Policy and Debt Sustainability in the EU," Empirica, Springer, vol. 28(1), pages 3-19, March.
  5. Frederico Gonzaga Jayme Junior, 2001. "External debt sustainability: empirical evidence in Brazil," Textos para Discussão Cedeplar-UFMG td154, Cedeplar, Universidade Federal de Minas Gerais.

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