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Policy Regime Changes and the Long-Run Sustainability of Fiscal Policy: An Application to Greece

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Author Info

  • Makrydakis, S.
  • Tzavalis, E.
  • Balfoussias, A.

Abstract

This paper questions the widespead practice of assessing the hypothesis of long-run fiscal policy sustainability by means of conventional unit-root tests that do not allow for the possible impact of regime shifts. Using the Greek economy as a model case, the Zivot- Andrews squential integrability testing procedure which allows for the endogenous determination of possible regime changes is deployed to this end.

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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 9601.

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Length: 27 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:exe:wpaper:9601

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Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
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Fax: (01392) 263242
Web page: http://business-school.exeter.ac.uk/about/departments/economics/
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Related research

Keywords: FISCAL POLICY; DEBT; UNIT ROOTS; ECONOMIC POLICY;

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References

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  1. Lockwood, B. & Philippopoulos, A., 1997. "Politics and Fiscal Policy," DEOS Working Papers 97-04, Athens University of Economics and Business.
  2. James G. MacKinnon, 1992. "Approximate Asymptotic Distribution Functions for Unit Roots and Cointegration Tests," Working Papers 861, Queen's University, Department of Economics.
  3. Willem H. Buiter & U. Patel, 1995. "Budgetary aspects of stabilization and structural adjustment in India: the painful road to a sustainable fiscal-financial-monetary plan," LSE Research Online Documents on Economics 20722, London School of Economics and Political Science, LSE Library.
  4. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  5. Kiviet, Jan F & Phillips, Garry D A, 1992. "Exact Similar Tests for Unit Roots and Cointegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 349-67, August.
  6. Christiano, Lawrence J, 1992. "Searching for a Break in GNP," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 237-50, July.
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  8. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  9. Buiter, Willem H & Patel, U, 1990. "Debt, Deficits and Inflation: An Application to the Public Finance of India," CEPR Discussion Papers 408, C.E.P.R. Discussion Papers.
  10. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  11. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  12. Bharat Trehan & Carl E. Walsh, 1987. "Common trends, the government's budget constraint, and revenue smoothing," Working Papers in Applied Economic Theory 87-11, Federal Reserve Bank of San Francisco.
  13. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  14. Kremers, Jeroen J. M., 1988. "Long-run limits on the US Federal debt," Economics Letters, Elsevier, vol. 28(3), pages 259-262.
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  16. Wickens, M. R. & Uctum, Merih, 1993. "The sustainability of current account deficits : A test of the US intertemporal budget constraint," Journal of Economic Dynamics and Control, Elsevier, vol. 17(3), pages 423-441, May.
  17. Schwert, G. William, 1987. "Effects of model specification on tests for unit roots in macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 73-103, July.
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  19. Sephton, Peter S., 1995. "Response surface estimates of the KPSS stationarity test," Economics Letters, Elsevier, vol. 47(3-4), pages 255-261, March.
  20. 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.
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Citations

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Cited by:
  1. Ahmad Zubaidi Baharumshah & Evan Lau, 2002. "On the Sustainability of Current Account Deficits: Evidence from Four ASEAN Countries," Working Papers 0062, National University of Ireland Galway, Department of Economics, revised 2002.
  2. Efthymios Tsionas, 2003. "Inflation and Productivity in Europe: An Empirical Investigation," Empirica, Springer, vol. 30(1), pages 39-62, March.
  3. Samuel S. Jibao & Niek Schoeman & Ruthira Naraidoo, 2011. "Fiscal regime changes and the sustainability of fiscal imbalance in South Africa; a smooth transition error-correction approach," Working Papers 228, Economic Research Southern Africa.
  4. António Afonso & João Tovar Jalles, 2011. "A Longer-run Perspective on Fiscal Sustainability," Working Papers Department of Economics 2011/17, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  5. 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.
  6. Evan Lau & Ahmad Zubaidi Baharumshah, 2005. "Assessing The Mean Reversion Behavior Of Fiscal Policy: The Case Of Asian Countries," Macroeconomics 0504002, EconWPA.
  7. Baharumshah, Ahmad Zubaidi & Lau, Evan, 2007. "Regime changes and the sustainability of fiscal imbalance in East Asian countries," Economic Modelling, Elsevier, vol. 24(6), pages 878-894, November.
  8. Georgios P. Kouretas & Prodromos Vlamis, 2010. "The Greek Crisis: Causes and Implications," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(4), pages 391-404, December.
  9. Onel, Gulcan & Utkulu, Utku, 2006. "Modeling the long-run sustainability of Turkish external debt with structural changes," Economic Modelling, Elsevier, vol. 23(4), pages 669-682, July.
  10. Evan Lau & Ahmad Zubaidi Baharumshah & Shazali Abu Mansor & Chin-Hong Puah, 2009. "Testing Stationarity of Budgetary Position in Developing Countries," International Econometric Review (IER), Econometric Research Association, vol. 1(2), pages 77-87, April.
  11. António Afonso, 2000. "Fiscal policy sustainability: some unpleasant European evidence," Working Papers Department of Economics 2000/12, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  12. Lockwood, Ben & Philippopoulos, Apostolis & Tzavalis, Elias, 2001. "Fiscal policy and politics: theory and evidence from Greece 1960-1997," Economic Modelling, Elsevier, vol. 18(2), pages 253-268, April.
  13. Konstantinos Angelopoulos & Apostolis Philippopoulos, 2007. "The growth effects of fiscal policy in Greece 1960–2000," Public Choice, Springer, vol. 131(1), pages 157-175, April.
  14. Tsionas, Efthymios G., 2001. "P-STAR analysis in a converging economy: the case of Greece," Economic Modelling, Elsevier, vol. 18(1), pages 49-60, January.

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