The recent controversy over the excessive deficit procedure in Germany and France has reopened the discussion over the long run sustainability of fiscal policies. This paper tests the hypothesis of sustainability in a group of six EU countries, with an econometric methodology allowing the consideration of often neglected structural breaks in the data. It is found that, prior to EMU, only Germany followed a sustainable fiscal policy, ensuring a bounded debt-GDP ratio. The negative shock to government finances of the early 1970s appears to be still affecting the European economies.
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Paper provided by University of Évora, Department of Economics (Portugal) in its series Economics Working Papers with number
1_2004.
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