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Appraising fiscal reaction functions

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Author Info

  • António Afonso
  • João Tovar-Valles

Abstract

We estimate fiscal responses for an OECD panel, accounting for cross-country interactions, and also estimate the fiscal responses in a panel VAR. We find that governments have increased primary balances when facing higher government indebtedness, implying a Ricardian fiscal regime, while primary balances have improved to reduce government debt. These results hold for the single regression panel analysis and for the panel VAR.

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File URL: http://pascal.iseg.utl.pt/~depeco/wp/wp232011.pdf
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Bibliographic Info

Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2011/23.

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Date of creation: Oct 2011
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Handle: RePEc:ise:isegwp:wp232011

Contact details of provider:
Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

Related research

Keywords: fiscal regimes; Panel VAR; cross-sectional dependence Classification-C23; E62; H62;

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  1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  2. Markus Eberhardt & Francis Teal, 2009. "Econometrics for Grumblers: A New Look at the Literature on Cross-Country Growth Empirics," CSAE Working Paper Series 2009-07, Centre for the Study of African Economies, University of Oxford.
  3. Pesaran, M. Hashem & Smith, Ron, 1995. "The role of theory in econometrics," Journal of Econometrics, Elsevier, vol. 67(1), pages 61-79, May.
  4. Afonso, António, 2005. "Ricardian fiscal regimes in the European Union," Working Paper Series 0558, European Central Bank.
  5. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  6. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
  7. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
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Cited by:
  1. António Afonso & João Tovar Jalles, 2012. "Revisiting fiscal sustainability: panel cointegration and structural breaks in OECD countries," Working Papers Department of Economics 2012/29, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Truong Nguyen, 2013. "Estimating India's Fiscal Reaction Function," ASARC Working Papers 2013-05, The Australian National University, Australia South Asia Research Centre.

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