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Public debt, the unit root hypothesis and structural breaks: a multi-country analysis

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Author Info

  • Merih Uctum

    (Brooklyn College - City University of New York, Graduate Center - City University of New York)

  • Thom Thurston

    (Graduate Center - City University of New York, Queen's College - City University of New York)

  • Remzi Uctum

    (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre)

Abstract

We assess fiscal performances in G7 and selected Latin American and Asian countries. We analyze two questions: (i) have public finances been sustainable? (ii) do countries follow more restrictive fiscal policies when debt starts to rise? We find that: (i) The traditional unit root tests often overlook the corrective actions taken by many governments. Controlling for structural breaks changes the nonstationarity results dramatically among the three groups; (ii) Estimation of a reaction function for governments, expanded by incorporating structural breaks, provides further evidence for significant active anti-debt policies among the G7 and to a lesser extent in the other regions.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00081527.

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Date of creation: 2006
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Publication status: Published, Economica, 2006, 73, 289, 129-156
Handle: RePEc:hal:journl:halshs-00081527

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00081527/en/
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Related research

Keywords: fiscal policy; sustainability; government reaction function; structural breaks;

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  12. Ben-David, D. & Lumsdaine, L.R. & Papell, D.H., 1996. "Unit Roots Postwar Slowdowns and Long-Run Growth: Evidence from Two Structural Breaks," Papers 33-96, Tel Aviv.
  13. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-45, July.
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Citations

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Cited by:
  1. Jan HANOUSEK & Evžen KOČENDA, 2010. "Public investment and fiscal performance in new EU member states," Departmental Working Papers 2010-07, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  2. Tomomi Miyazaki, 2014. "Fiscal Reform and Fiscal Sustainability: Evidence from Australia and Sweden," Discussion Papers 1407, Graduate School of Economics, Kobe University.
  3. Gnegne, Yacouba & Jawadi, Fredj, 2013. "Boundedness and nonlinearities in public debt dynamics: A TAR assessment," Economic Modelling, Elsevier, vol. 34(C), pages 154-160.
  4. Jan Hanousek & Evžen Kočenda, 2011. "Public Investment and Fiscal Performance in the New EU Member States," Fiscal Studies, Institute for Fiscal Studies, vol. 32(1), pages 43-71, 03.
  5. Jan Hanousek & Evžen Kočenda, 2011. "Corruption and Economic Freedom Links to Public Finance and Investment in New EU Members," Politická ekonomie, University of Economics, Prague, vol. 2011(3), pages 310-328.
  6. Bhatt, Antra, 2010. "Revisiting Indicators of Public Debt Sustainability: Capital Expenditure, Growth and Public Debt in India," MPRA Paper 27422, University Library of Munich, Germany.
  7. Gabriella Deborah Legrenzi & Costas Milas, 2010. "Spend-and-Tax Adjustments and the Sustainability of the Government's Intertemporal Budget Constraint," CESifo Working Paper Series 2926, CESifo Group Munich.
  8. Kocenda, Evzen & Kutan, Ali M. & Yigit, Taner M., 2008. "Fiscal convergence in the European Union," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 319-330, December.

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