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Sustainability of EU fiscal policies, a panel test

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  • Peter Claeys

    ()
    (Faculty of Economics, University of Barcelona.)

Abstract

The fiscal policy rule implicit in the Stability and Growth Pact, has been rationalised as a way to ensure that national fiscal policies remain sustainable within the EU, thereby endorsing the independence of the ECB. We empirically examine the sustainability of European fiscal policies over the period 1970-2001. The intertemporal government budget constraint provides a test based on the cointegration relation between government revenues, expenditures and interest payments. Sustainability is analysed at both the national level and for a European panel. Results show that European fiscal policy has been sustainable overall, yet national experiences differ considerably.

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Bibliographic Info

Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 200702.

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Length: 24 pages
Date of creation: Jan 2007
Date of revision: Jan 2007
Handle: RePEc:ira:wpaper:200702

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Web page: http://www.ub.edu/irea/
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Related research

Keywords: Fiscal policy; debt sustainability; panel unit root test; panel cointegration test; EMU.;

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  1. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2001. "Is the Price Level Determined by the Needs of Fiscal Solvency?," American Economic Review, American Economic Association, vol. 91(5), pages 1221-1238, December.
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  4. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2004. "Some cautions on the use of panel methods for integrated series of macroeconomic data," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 322-340, December.
  5. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  6. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  7. Ahmed, S. & Rogers, J.H., 1993. "Government Budget Deficits and Trade Deficits: Are Present Value Constraints Satisfied in Long-Term Data?," Papers, Pennsylvania State - Department of Economics 5-93-6, Pennsylvania State - Department of Economics.
  8. Antonio Afonso, 2004. "Fiscal Sustainability: the Unpleasant European Case," Money Macro and Finance (MMF) Research Group Conference 2004, Money Macro and Finance Research Group 57, Money Macro and Finance Research Group.
  9. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Does Monetary Unification Lead to Excessive Debt Accumulation?," DELTA Working Papers, DELTA (Ecole normale supérieure) 95-23, DELTA (Ecole normale supérieure).
  10. Arghyrou, Michael G. & Luintel, Kul B., 2007. "Government solvency: Revisiting some EMU countries," Journal of Macroeconomics, Elsevier, Elsevier, vol. 29(2), pages 387-410, June.
  11. Bravo, Ana Bela Santos & Silvestre, Antonio Luis, 2002. "Intertemporal sustainability of fiscal policies: some tests for European countries," European Journal of Political Economy, Elsevier, vol. 18(3), pages 517-528, September.
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  13. Henning Bohn, 2005. "The Sustainability of Fiscal Policy in the United States," CESifo Working Paper Series 1446, CESifo Group Munich.
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Cited by:
  1. Michael J. Artis & Ernest Miguélez & Rosina Morenos, 2011. "Assessing agglomeration economies in a spatial framework with endogenous regressors," IREA Working Papers, University of Barcelona, Research Institute of Applied Economics 201112, University of Barcelona, Research Institute of Applied Economics, revised Jul 2011.
  2. Afonso, António & Rault, Christophe, 2007. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Working Paper Series, European Central Bank 0820, European Central Bank.
  3. Juan Luis Jiménez & Jordi Perdiguero & Ancor Suárez, 2011. "Debating as a classroom tool for adapting learning outcomes to the European higher education area," IREA Working Papers, University of Barcelona, Research Institute of Applied Economics 201109, University of Barcelona, Research Institute of Applied Economics, revised Jun 2011.
  4. Rossana Merola & Douglas Sutherland, 2013. "Fiscal Consolidation and the Implications of Social Spending for Long-Term Fiscal Sustainability," Review of Economics and Institutions, Università di Perugia, Università di Perugia, vol. 4(3).
  5. António Afonso & Christophe Rault, 2007. "What We Really Know about Fiscal Sustainability in the EU? A Panel Data Diagnostic," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2007/20, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.

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