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The Roots of the Eurozone Sovereign Debt Crisis: PIGS vs Non-PIGS

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  • Abel L. Costa Fernandes

    ()
    (Faculdade de Economia do Porto and NIFIP, Universidade do Porto, Portugal)

  • Paulo R. Mota

    ()
    (Faculdade de Economia do Porto and NIFIP, Universidade do Porto, Portugal)

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    Abstract

    The main purposes of this paper are twofold: a) to determine if there are significant differences on the determinants of public expenditures and tax revenues between the so-called PIGS and the remaining Eurozone member states; b) to uncover possible explanations for the different situations in which these countries find themselves nowadays. The paper focus on the effects of the cyclical state of the economy on those fiscal variables, and on the actual adherence to the fiscal rules imposed by the Maastricht Treaty. Based on the estimated results we conclude that the anti-cyclical reaction with respect to the unemployment rate is much stronger among non-PIGS. We also find that fiscal rules have, in general, not been followed by those two groups of countries. Moreover, PIGS, in spite of their economic frailties, have tried to emulate the fiscal behavior of their more prosperous Eurozone partners instead of executing more rigorous policies.

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    Bibliographic Info

    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 58 (2011)
    Issue (Month): 5 (December)
    Pages: 631-649

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    Handle: RePEc:voj:journl:v:58:y:2011:i:5:p:631-649

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    Web page: http://www.panoeconomicus.rs/

    Related research

    Keywords: European public finance; Fiscal policy; Fiscal rules;

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    References

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    1. Hallerberg, Mark & Strauch, Rolf & von Hagen, Jürgen, 2004. "The design of fiscal rules and forms of governance in European Union countries," Working Paper Series 0419, European Central Bank.
    2. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
    3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
    4. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    5. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
    6. Allan Drazen & Marcela Eslava, 2005. "Electoral Manipulation via Expenditure Composition: Theory and Evidence," NBER Working Papers 11085, National Bureau of Economic Research, Inc.
    7. Tabellini, Guido & Alesina, Alberto, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Scholarly Articles 3612769, Harvard University Department of Economics.
    8. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
    9. Susanne Lohmann, 1998. "Rationalizing the Political Business Cycle: A Workhorse Model," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 1-17, 03.
    10. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
    11. Christina Schneider, 2010. "Fighting with one hand tied behind the back: political budget cycles in the West German states," Public Choice, Springer, vol. 142(1), pages 125-150, January.
    12. Mark Hallerberg & Rolf Strauch, 2002. "On the Cyclicality of Public Finances in Europe," Empirica, Springer, vol. 29(3), pages 183-207, September.
    13. Yianos Kontopoulos & Roberto Perotti, 1999. "Government Fragmentation and Fiscal Policy Outcomes: Evidence from OECD Countries," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 81-102 National Bureau of Economic Research, Inc.
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    Cited by:
    1. Francisco Rebelo & Ester Gomes da Silva, 2013. "Export variety, technological content and economic performance: The case of Portugal," Papers in Evolutionary Economic Geography (PEEG) 1310, Utrecht University, Section of Economic Geography, revised Jun 2013.
    2. Abel L. Costa Fernandes & Paulo R. Mota, 2013. "The Euro Zone Peripheral Countries’ Sovereign Debt Crisis: Also a Case of Non-Mature Democracies?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(3), pages 291-310, May.
    3. Mikhail Stolbov, 2014. "How Are Interbank and Sovereign Debt Markets Linked? Evidence from 14 OECD Countries, the Euro Area and Russia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(3), pages 331-348, June.

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