The extent of government deficits and debt has been one of the most debated issues in recent years. However, much less has been contributed about their dynamics. Yet, the issue of entering into and exiting from excessive deficits is critical in the Economic and Monetary Union since the Stability and Growth Pact rules out deficits larger than 3 percent of GDP, unless countries face strictly defined unusual conditions. This paper provides a transition data analysis of the dynamics of public deficits. It shows the asymmetric role played by the economic determinants in these dynamics and estimates the evolution of the probability of entering into and exiting from excessive deficits for every individual member state of the European Union that signed the Maastricht Treaty, since 1970. It also reveals how the concurrence of some minor changes may produce a major switchover in public finance outcomes. Finally, it analyses the evolution over time of the probabilities that countries will enter or escape from the state of having excessive deficit, and hence the fragility of some countries even if they are now out of excessive deficits.
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 2703.
Find related papers by JEL classification: C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General H60 - Public Economics - - National Budget, Deficit, and Debt - - - General H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
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.:
Alberto F. Alesina & Roberto Perotti, 1999.
"Budget Deficits and Budget Institutions,"
NBER Chapters,
in: Fiscal Institutions and Fiscal Performance, pages 13-36
National Bureau of Economic Research, Inc.
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