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Sustainability of Swiss Fiscal Policy

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  • Gebhard Kirchgässner
  • Silika Prohl

Abstract

Was Swiss federal fiscal policy sustainable over the period from 1900 to 2002? We perform unit root and cointegration tests for federal revenues and expenditures, taking into account a structural shift related to World War II. We find sustainability over the entire period. However, splitting the sample into two sub-samples before and after World War II, the results do much less support sustainability. Finally, applying the tax smoothing model of BARRO (1979), we show that cyclical fluctuations of the output and changes in expected inflation rate are major determinants of the federal budget deficit over the time period considered.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 144 (2008)
Issue (Month): I (March)
Pages: 57-83

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Handle: RePEc:ses:arsjes:2008-i-3

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Keywords: Sustainability; Budget Deficits; Cointegration; Structural Breaks;

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References

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  1. Lars P. Feld & Gebhard Kirchgässner, 2004. "Sustainable Fiscal Policy in a Federal System: Switzerland as an Example," Marburg Working Papers on Economics 200424, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
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Citations

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Cited by:
  1. Lars Feld & Christoph Schaltegger, 2010. "Political stability and fiscal policy: time series evidence for the Swiss federal level since 1849," Public Choice, Springer, vol. 144(3), pages 505-534, September.
  2. Lars Feld & Marcel Savioz & Jan Schnellenbach, 2010. "Gebhard Kirchgässner, 60 years on," Public Choice, Springer, vol. 144(3), pages 393-399, September.

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