This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

What We Really Know about Fiscal Sustainability in the EU? A Panel Data Diagnostic

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
António Afonso
Christophe Rault

Additional information is available for the following registered author(s):

Abstract

We assess the sustainability of public finances in the EU15 over the period 1970-2006 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (1999, 2004), generalized by Banerjee and Carrion-i-Silvestre (2006) and Westerlund and Edgerton (2007), to a structural long-run equation between general government expenditures and revenues. While estimations point to fiscal sustainability being an issue in some countries, fiscal policy was sustainable both for the EU15 panel set, and within subperiods (1970-1991 and 1992-2006).

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://pascal.iseg.utl.pt/~depeco/wp/wp202007.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number 2007/20.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:ise:isegwp:wp202007

Contact details of provider:
Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: http://www.iseg.utl.pt/departamentos/economia/

For technical questions regarding this item, or to correct its listing, contact: (Vitor Escaria).

Related research
Keywords: intertemporal budget constraint; fiscal sustainability; EU; panel unit root; panel cointegration.;

Other versions of this item:

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management

This paper has been announced in the following NEP Reports:

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.:
  1. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall. [Downloadable!] (restricted)
    Other versions:
  2. MacDonald, Ronald, 1992. "Some Tests of the Government's Intertemporal Budget Constraint Using U.S. Data," Applied Economics, Taylor and Francis Journals, vol. 24(12), pages 1287-92, December.
  3. O'Connell, Paul G. J., 1998. "The overvaluation of purchasing power parity," Journal of International Economics, Elsevier, vol. 44(1), pages 1-19, February. [Downloadable!] (restricted)
  4. Joerg Breitung & M. Hashem Pesaran, 2005. "Unit Roots and Cointegration in Panels," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  5. Chihwa Kao & Suzanne McCoskey, 1997. "A Residual-Based Test Of The Null Of Cointegration In Panel Data," Econometrics 9711002, EconWPA. [Downloadable!]
    Other versions:
  6. Westerlund, Joakim & Edgerton, David L., 2007. "A panel bootstrap cointegration test," Economics Letters, Elsevier, vol. 97(3), pages 185-190, December. [Downloadable!] (restricted)
  7. Ahmed, Shaghil & Rogers, John H., 1995. "Government budget deficits and trade deficits Are present value constraints satisfied in long-term data?," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 351-374, November. [Downloadable!] (restricted)
    Other versions:
  8. MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche 2002-18, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
    Other versions:
  9. Groen, Jan J J & Kleibergen, Frank, 2003. "Likelihood-Based Cointegration Analysis in Panels of Vector Error-Correction Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 295-318, April.
    Other versions:
  10. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, 07. [Downloadable!] (restricted)
  11. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August. [Downloadable!] (restricted)
    Other versions:
  12. Larsson, Rolf & Lyhagen, Johan & Löthgren, Mickael, 1998. "Likelihood-Based Cointegration Tests in Heterogeneous Panels," Working Paper Series in Economics and Finance 250, Stockholm School of Economics, revised 27 Aug 1998.
    Other versions:
  13. Uctum, Merih & Wickens, Michael, 2000. " Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 197-222, May. [Downloadable!] (restricted)
    Other versions:
  14. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May. [Downloadable!] (restricted)
  15. Breuer, Janice Boucher & McNown, Robert & Wallace, Myles, 2002. " Series-Specific Unit Root Tests with Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(5), pages 527-46, December. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
    Other versions:
  17. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
    Other versions:
  18. Richard Morris & Hedwig Ongena & Ludger Schuknecht, 2006. "The reform and implementation of the Stability and Growth Pact," Occasional Paper Series 47, European Central Bank. [Downloadable!]
  19. Bergman, Michael, 2001. "Testing Government Solvency and the No Ponzi Game Condition," Applied Economics Letters, Taylor and Francis Journals, vol. 8(1), pages 27-29, January. [Downloadable!] (restricted)
  20. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Oxford University Press, vol. 29(3), pages 429-45, July.
  21. Trehan, Bharat & Walsh, Carl E, 1991. "Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 206-23, May. [Downloadable!] (restricted)
    Other versions:
  22. Haug, Alfred A, 1991. "Cointegration and Government Borrowing Constraints: Evidence for the United States," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 97-101, January.
  23. António Afonso & Pedro Gomes & Philipp Rother, 2007. "What “hides” behind sovereign debt ratings?," Working Paper Series 711, European Central Bank. [Downloadable!]
    Other versions:
  24. Feve, Patrick & Henin, Pierre-Yves, 2000. " Assessing Effective Sustainability of Fiscal Policy within the G-7," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 175-95, May. [Downloadable!] (restricted)
    Other versions:
  25. António Afonso, 2005. "Ricardian fiscal regimes in the European Union," Working Paper Series 558, European Central Bank. [Downloadable!]
    Other versions:
  26. Park, Joon Y., 2002. "An Invariance Principle For Sieve Bootstrap In Time Series," Econometric Theory, Cambridge University Press, vol. 18(02), pages 469-490, April. [Downloadable!]
  27. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, . "Some Cautions on the Use of Panel Methods for Integrated Series of Macro-Economic Data," Working Papers 170, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  28. McCallum, Bennett T, 1984. "Are Bond-Financed Deficits Inflationary? A Ricardian Analysis," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 123-35, February. [Downloadable!] (restricted)
    Other versions:
  29. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July. [Downloadable!] (restricted)
    Other versions:
  30. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November. [Downloadable!] (restricted)
    Other versions:
  31. Tanner, Evan & Liu, Peter, 1994. "Is the Budget Deficit "Too Large"?: Some Further Evidence," Economic Inquiry, Oxford University Press, vol. 32(3), pages 511-18, July.
  32. 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. [Downloadable!] (restricted)
  33. Payne, James E, 1997. "International Evidence on the Sustainability of Budget Deficits," Applied Economics Letters, Taylor and Francis Journals, vol. 4(12), pages 775-79, December. [Downloadable!] (restricted)
  34. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May. [Downloadable!] (restricted)
  35. Taylor, Mark P. & Sarno, Lucio, 1998. "The behavior of real exchange rates during the post-Bretton Woods period," Journal of International Economics, Elsevier, vol. 46(2), pages 281-312, December. [Downloadable!] (restricted)
    Other versions:
  36. Pesaran, M. Hashem, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," IZA Discussion Papers 1240, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  37. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May. [Downloadable!] (restricted)
    Other versions:
  38. Anindya Banerjee & Josep Lluís, 2006. "Cointegration in panel data with breaks and cross-section dependence," Working Paper Series 591, European Central Bank. [Downloadable!]
  39. Schmidt, Peter & Phillips, C B Peter, 1992. "LM Tests for a Unit Root in the Presence of Deterministic Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 257-87, August.
  40. Westerlund, Joakim, 2005. "New Simple Tests for Panel Cointegration," Working Papers 2005:8, Lund University, Department of Economics.
  41. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August. [Downloadable!] (restricted)
  42. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-17, October.
  43. Peter Claeys, 2007. "Sustainability of EU fiscal policies, a panel test," IREA Working Papers 200702, University of Barcelona, Research Institute of Applied Economics, revised Jan 2007. [Downloadable!]
  44. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July. [Downloadable!] (restricted)
    Other versions:
  45. Lyhagen, Johan, 2000. "Why not use standard panel unit root test for testing PPP," Working Paper Series in Economics and Finance 413, Stockholm School of Economics. [Downloadable!]
    Other versions:
  46. Chang, Yoosoon & Park, Joon Y. & Song, Kevin, 2006. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 133(2), pages 703-739, August. [Downloadable!] (restricted)
  47. Silika Prohl & Friedrich G. Schneider, 2006. "Sustainability of Public Debt and Budget Deficit: Panel cointegration analysis for the European Union Member countries," Economics working papers 2006-10, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
  48. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312. [Downloadable!]
    Other versions:
  49. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, . "Testing for PPP: Should We Use Panel Methods?," Working Papers 186, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  50. Anindya Banerjee & Josep Lluís Carrion-i-Silvestre, 2006. "Cointegration in Panel Data with Breaks and Cross-Section Dependence," Economics Working Papers ECO2006/5, European University Institute. [Downloadable!]
  51. M Pesaran & Yongcheol Shin & Ron P Smith, 2004. "Pooled mean group estimation of dynamic heterogeneous panels," ESE Discussion Papers 16, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
Full references

Statistics
Access and download statistics

Did you know? Springer Verlag was the first commercial publisher to be listed on RePEc.

This page was last updated on 2009-11-20.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.