Advanced Search
MyIDEAS: Login to save this paper or follow this series

Is the Budget Deficit Sustainable when Fiscal Policy is nonlinear? The Case of Spain, 1961-2001

Contents:

Author Info

Abstract

In this paper we re-examine the long-run sustainability of budget deficits, when fiscal policy is conducted as a nonlinear process. Our empirical methodology makes use of recent developments on threshold cointegration that consider the possibility of a nonlinear relationship between government revenues and expenditures. The analysis is applied to the case of Spain, a country that has recently accomplished an important fiscal consolidation. Overall, our results suggest the presence of significant nonlinear effects in Spanish fiscal policy, so that fiscal authorities would cut deficits only if they are “large”, and assuring their long-run sustainability.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://public.centrodeestudiosandaluces.es/pdfs/E200332.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2003/32.

as in new window
Length: 20 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:cea:doctra:e2003_32

Contact details of provider:
Postal: c/ Bailén 50. 41001 Sevilla
Phone: (34) 955 055 210
Fax: (34) 955 055 211
Email:
Web page: http://www.centrodeestudiosandaluces.es
More information through EDIRC

Related research

Keywords: Fiscal policy; Sustainability; Threshold cointegration.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions be Expansionary? Tales of Two Small European Countries," NBER Working Papers 3372, National Bureau of Economic Research, Inc.
  2. Gael M. Martin, 2000. "US deficit sustainability: a new approach based on multiple endogenous breaks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 15(1), pages 83-105.
  3. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0130, National Bureau of Economic Research, Inc.
  4. Perron, P. & Ng, S., 1994. "Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9427, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  5. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2374, C.E.P.R. Discussion Papers.
  6. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
  7. Cecilio R. Tamarit & Vicente Esteve Garcia & Mariam Camarero, 1998. "- Cambio De Régimen Y Sostenibilidad A Largo Plazo De La Política Fiscal: El Caso De España," Working Papers. Serie EC, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 1998-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  8. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, Econometric Society, vol. 69(6), pages 1519-1554, November.
  9. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, Econometric Society, vol. 61(4), pages 821-56, July.
  10. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
  11. Bertola, Giuseppe & Drazen, Allan, 1993. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," American Economic Review, American Economic Association, American Economic Association, vol. 83(1), pages 11-26, March.
  12. Philip Arestis & Andrea Cipollini & Bassam Fattouh, 2002. "Threshold Effects in the U.S. Budget Deficit," Economics Working Paper Archive, Levy Economics Institute wp_358, Levy Economics Institute.
  13. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  14. 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, Federal Reserve Bank of San Francisco 88-03, Federal Reserve Bank of San Francisco.
  15. Ardagna, Silvia & Alesina, Alberto, 1998. "Tales of Fiscal Adjustment," Scholarly Articles 2579822, Harvard University Department of Economics.
  16. Hansen, Bruce E. & Seo, Byeongseon, 2002. "Testing for two-regime threshold cointegration in vector error-correction models," Journal of Econometrics, Elsevier, Elsevier, vol. 110(2), pages 293-318, October.
  17. Nathan S. Balke & Thomas B. Fomby, 1992. "Threshold cointegration," Research Paper, Federal Reserve Bank of Dallas 9209, Federal Reserve Bank of Dallas.
  18. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1170-88, December.
  19. Forbes, Catherine S & Kalb, Guyonne R J & Kofman, Paul, 1999. "Bayesian Arbitrage Threshold Analysis," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 17(3), pages 364-72, July.
  20. Haug, Alfred A, 1995. "Has Federal Budget Deficit Policy Changed in Recent Years?," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 33(1), pages 104-18, January.
  21. James D. Hamilton & Marjorie A. Flavin, 1985. "On the Limitations of Government Borrowing: A Framework for Empirical Testing," NBER Working Papers 1632, National Bureau of Economic Research, Inc.
  22. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 13(4), pages 409-17, October.
  23. Schwert, G William, 1989. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 7(2), pages 147-59, April.
  24. Giavazzi, Francesco & Pagano, Marco, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1284, C.E.P.R. Discussion Papers.
  25. Alberto Alesina & Silvia Ardagna, 1998. "Tales of fiscal adjustment," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 13(27), pages 487-545, October.
  26. Craig S. Hakkio & Mark Rush, 1990. "Cointegration: how short is the long run?," Research Working Paper, Federal Reserve Bank of Kansas City 90-08, Federal Reserve Bank of Kansas City.
  27. Cipollini, Andrea, 2001. "Testing for Government Intertemporal Solvency: A Smooth Transition Error Correction Model Approach," Manchester School, University of Manchester, University of Manchester, vol. 69(6), pages 643-55, December.
  28. Paul Grauwe, 1996. "The economics of convergence: Towards monetary union in Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 132(1), pages 1-27, March.
  29. repec:cup:macdyn:v:5:y:2001:i:4:p:533-76 is not listed on IDEAS
  30. Smith, Gregor W & Zin, Stanley E, 1991. "Persistent Deficits and the Market Value of Government Debt," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 6(1), pages 31-44, Jan.-Marc.
  31. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 29(3), pages 429-45, July.
  32. Oscar Bajo-Rubio & Carmen Díaz-Roldán & Vicente Esteve, 2003. "Searching for Threshold Effects in the Evolution of Budget Deficits: An Application to the Spanish Case," Economic Working Papers at Centro de Estudios Andaluces, Centro de Estudios Andaluces E2003/29, Centro de Estudios Andaluces.
  33. Lo, Ming Chien & Zivot, Eric, 2001. "Threshold Cointegration And Nonlinear Adjustment To The Law Of One Price," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 5(04), pages 533-576, September.
  34. Charles Wyplosz, 1997. "EMU: Why and How It Might Happen," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(4), pages 3-21, Fall.
  35. David W. Wilcox, 1987. "The substainability of government deficits: implications of the present- value borrowing constraint," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 77, Board of Governors of the Federal Reserve System (U.S.).
  36. repec:fth:coluec:754 is not listed on IDEAS
  37. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(4), pages 1399-1436, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Chen, Shyh-Wei, 2014. "Testing for fiscal sustainability: New evidence from the G-7 and some European countries," Economic Modelling, Elsevier, Elsevier, vol. 37(C), pages 1-15.
  2. Chin-Hong Puah Author_Email: chpuah@feb.unimas.my & Evan Lau & Hui-Fern Teo, 2011. "Testing Budget Sustainability In Sarawak State," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding, Conference Master Resources 2011-221, Conference Master Resources.
  3. Escario, Regina & Gadea, María Dolores & Sabaté, Marcela, 2012. "Multicointegration, seigniorage and fiscal sustainability. Spain 1857–2000," Journal of Policy Modeling, Elsevier, Elsevier, vol. 34(2), pages 270-283.
  4. Trachanas, Emmanouil & Katrakilidis, Constantinos, 2013. "Fiscal deficits under financial pressure and insolvency: Evidence for Italy, Greece and Spain," Journal of Policy Modeling, Elsevier, Elsevier, vol. 35(5), pages 730-749.
  5. Piergallini, Alessandro & Postigliola, Michele, 2013. "Non-Linear Budgetary Policies: Evidence from 150 Years of Italian Public Finance," MPRA Paper 48922, University Library of Munich, Germany.
  6. Oscar Bajo-Rubio & Carmen Díaz-Roldán & Vicente Esteve, 2007. "Deficit sustainability and inflation in EMU: An analysis from the fiscal theory of the price level," Working Papers, Asociación Española de Economía y Finanzas Internacionales 07-01, Asociación Española de Economía y Finanzas Internacionales.
  7. Fan, Jingwen & Arghyrou, Michael G, 2011. "UK Fiscal Policy Sustainability, 1955-2006," Cardiff Economics Working Papers E2011/9, Cardiff University, Cardiff Business School, Economics Section.
  8. Gabriella Deborah Legrenzi & Costas Milas, 2012. "Fiscal Policy Sustainability, Economic Cycle and Financial Crises: The Case of the GIPS," CESifo Working Paper Series 4001, CESifo Group Munich.
  9. Congregado, Emilio & Golpe, Antonio A. & Carmona, Mónica, 2010. "Is it a good policy to promote self-employment for job creation? Evidence from Spain," Journal of Policy Modeling, Elsevier, Elsevier, vol. 32(6), pages 828-842, November.
  10. Holmes, Mark J., 2011. "Threshold cointegration and the short-run dynamics of twin deficit behaviour," Research in Economics, Elsevier, Elsevier, vol. 65(3), pages 271-277, September.
  11. Ghassan, Hassan B. & AlDehailan, Salman, 2009. "اختبار التكامل المشترك غير الخطي بين الاستثمار الحكومي والاستثمار الخاص في الاقتصاد السعودي
    [Test of Non Linear Cointe
    ," MPRA Paper 56376, University Library of Munich, Germany, revised 04 Dec 2009.
  12. Holmes, Mark J. & Shen, Xin, 2013. "A note on the average propensity to consume, wealth and threshold adjustment," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 309-313.
  13. Tsong, Ching-Chuan & Wu, Chien-Wei & Chiu, Hsien-Hung & Lee, Cheng-Feng, 2013. "Covariate unit root tests under structural change and asymmetric STAR dynamics," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 101-112.
  14. Piergallini, Alessandro, 2012. "Non-Linear Fiscal Regimes and Interest Rate Policy," MPRA Paper 42671, University Library of Munich, Germany.
  15. Regina Escario & María Dolores Gadea & Marcela Sabaté, 2009. "Government Solvency or just Pseudo-Sustainability? a Long-Run Multicointegration Approach for Spain," Documentos de Trabajo, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza dt2009-07, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cea:doctra:e2003_32. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Teresa Rodríguez).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.