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Assessing long-term fiscal developments: evidence from Portugal

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  • Antonio Afonso
  • Ricardo Sousa

Abstract

We use a Three-Stage Least Square (TSLS) method and a system of equations to recursively estimate two components of fiscal policy - responsiveness and persistence - and to infer about the sources of fiscal deterioration (improvement). The results suggest that (i) government spending exhibits higher persistence than government revenue and (ii) government revenue is more responsive to the business cycle than government spending, pointing to fiscal deterioration issues.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 18 (2011)
Issue (Month): 1 ()
Pages: 1-5

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Handle: RePEc:taf:apeclt:v:18:y:2011:i:1:p:1-5

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References

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  1. Afonso, António & Rault, Christophe, 2007. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Working Paper Series 0820, European Central Bank.
  2. Bharat Trehan & Carl E. Walsh, 1988. "Testing intertemporal budget constraints: theory and applications to U. S. federal budget and current account deficits," Working Papers in Applied Economic Theory 88-03, Federal Reserve Bank of San Francisco.
  3. Smith, Gregor W & Zin, Stanley E, 1991. "Persistent Deficits and the Market Value of Government Debt," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(1), pages 31-44, Jan.-Marc.
  4. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1419-1447, November.
  5. Ant�nio Afonso & Ricardo M. Sousa, 2012. "The macroeconomic effects of fiscal policy," Applied Economics, Taylor & Francis Journals, vol. 44(34), pages 4439-4454, December.
  6. Ahmed, Shaghil & Rogers, John H., 1995. "Government budget deficits and trade deficits Are present value constraints satisfied in long-term data?," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 351-374, November.
  7. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-17, October.
  8. Afonso, António & Agnello, Luca & Furceri, Davide, 2008. "Fiscal policy responsiveness, persistence and discretion," Working Paper Series 0954, European Central Bank.
  9. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September.
  10. Afonso, António & Agnello, Luca & Furceri, Davide & Sousa, Ricardo M., 2011. "Assessing long-term fiscal developments: A new approach," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 130-146, February.
  11. Antonio Afonso, 2004. "Fiscal Sustainability: the Unpleasant European Case," Money Macro and Finance (MMF) Research Group Conference 2004 57, Money Macro and Finance Research Group.
  12. 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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Citations

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Cited by:
  1. António Afonso, 2013. "Anatomy of a fiscal débacle: the case of Portugal," Working Papers Department of Economics 2013/01, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Paulo Bastos & Natália P. Monteiro, 2011. "Managers and Wage Policies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 957-984, December.

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