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Are EU budget deficits stationary?

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Author Info

  • Mark Holmes

    ()

  • Jesús Otero

    ()

  • Theodore Panagiotidis

    ()

Abstract

In this paper, we test for the stationarity of European Union budget deficits over the period 1971 to 2006, using a panel of thirteen member countries. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the presence of cross-sectional dependence among the countries in the panel and (ii) the identification of potential structural breaks that might have occurred at different points in time. To address these concerns, we employ an AR-based bootstrap approach that allows us to test the null hypothesis of joint stationarity with endogenously determined structural breaks. In contrast to the existing literature, we find that the EU countries considered are characterised by fiscal stationarity over the full sample period irrespective of us allowing for structural breaks. This conclusion also holds when analysing sub-periods based on before and after the Maastricht treaty.

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File URL: http://hdl.handle.net/10.1007/s00181-009-0289-3
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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 38 (2010)
Issue (Month): 3 (June)
Pages: 767-778

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Handle: RePEc:spr:empeco:v:38:y:2010:i:3:p:767-778

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Related research

Keywords: Heterogeneous dynamic panels; Fiscal sustainability; Mean reversion; Panel stationarity test; C33; F32; F41;

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References

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Citations

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Cited by:
  1. Juan Carlos Cuestas & Karsten Staehr, 2011. "Fiscal shocks and budget balance persistence in the EU countries from Central and Eastern Europe," Bank of Estonia Working Papers wp2011-08, Bank of Estonia, revised 13 Jul 2011.
  2. Baumöhl, Eduard & Výrost, Tomáš & Lyócsa, Štefan, 2011. "Are we able to capture the EU debt crisis? Evidence from PIIGGS countries in panel unit root framework," MPRA Paper 30334, University Library of Munich, Germany.
  3. Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2011. "Unit-root and stationarity testing with empirical application on industrial production of CEE-4 countries," MPRA Paper 29648, University Library of Munich, Germany.

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