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Assessing Long-Term Fiscal Developments: Evidence from Portugal

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  • António Afonso
  • Ricardo M. Sousa

Abstract

Drawing on quarterly data for Portugal, we use a Three-Stage Least Square method and a system of equations to recursively estimate two components of fiscal policy – responsiveness and persistence – and to infer about the sources of fiscal deterioration (improvement). The results suggest that: (i) government spending exhibits higher persistence than government revenue; and (ii) government revenue is more responsive to the business cycle than government spending.

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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 2009/03.

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Date of creation: Jan 2009
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Handle: RePEc:ise:isegwp:wp32009

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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

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Keywords: Fiscal deterioration; Portugal.;

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References

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  1. Afonso, António & Agnello, Luca & Furceri, Davide, 2008. "Fiscal policy responsiveness, persistence and discretion," Working Paper Series 0954, European Central Bank.
  2. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
  3. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1419-1447, November.
  4. James D. Hamilton & Marjorie A. Flavin, 1985. "On the Limitations of Government Borrowing: A Framework for Empirical Testing," NBER Working Papers 1632, National Bureau of Economic Research, Inc.
  5. Bharat Trehan & Carl E. Walsh, 1988. "Testing intertemporal budget constraints: theory and applications to U. S. federal budget and current account deficits," Working Papers in Applied Economic Theory 88-03, Federal Reserve Bank of San Francisco.
  6. Afonso, António & Sousa, Ricardo M., 2009. "The macroeconomic effects of fiscal policy," Working Paper Series 0991, European Central Bank.
  7. Afonso, António & Agnello, Luca & Furceri, Davide & Sousa, Ricardo M., 2011. "Assessing long-term fiscal developments: A new approach," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 130-146, February.
  8. Shaghil Ahmed & John H. Rogers, 1995. "Government budget deficits and trade deficits: are present value constraints satisfied in long-term data?," International Finance Discussion Papers 494, Board of Governors of the Federal Reserve System (U.S.).
  9. António Afonso & Christophe Rault, 2008. "What do we really Know about Fiscal Sustainability in the EU? A Panel Data Diagnostic," CESifo Working Paper Series 2226, CESifo Group Munich.
  10. Bohn, Henning, 2007. "Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1837-1847, October.
  11. 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.
  12. Smith, Gregor W & Zin, Stanley E, 1991. "Persistent Deficits and the Market Value of Government Debt," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(1), pages 31-44, Jan.-Marc.
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Cited by:
  1. António Afonso, 2013. "Anatomy of a fiscal débacle: the case of Portugal," Working Papers Department of Economics 2013/01, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Paulo Bastos & Natália P. Monteiro, 2011. "Managers and Wage Policies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 957-984, December.

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