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3-Step Analysis of Public Finances Sustainability: the Case of the European Union

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Author Info
António Afonso
Christophe Rault

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Abstract

We use a 3-step analysis to assess the sustainability of public finances in the EU27. Firstly, we perform the SURADF specific panel unit root test to investigate the meanreverting behaviour of general government expenditure and revenue ratios. Secondly, we apply the bootstrap panel cointegration techniques that account for the time series and cross-sectional dependencies of the regression error. Thirdly, we check for a structural long-run equation between general government expenditures and revenues via SUR analysis. While results imply that public finances were not unsustainable for the EU panel, fiscal sustainability is an issue in most countries, with a below unit estimated coefficient of expenditure in the cointegration relation with revenue as the dependent variable.

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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 2008/35.

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Date of creation: Jun 2008
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Handle: RePEc:ise:isegwp:wp352008

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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/

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Related research
Keywords: fiscal sustainability; EU; panel cointegration.;

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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

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References listed on IDEAS
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Cited by:
(explanations, 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. António Afonso, 2009. "Neck, R. and Sturm, J.-E. (eds.): Sustainability of public debt," Journal of Economics, Springer, vol. 97(1), pages 95-96, May. [Downloadable!] (restricted)
  2. António Afonso & Luca Agnello & Davide Furceri & Ricardo M. Sousa, 2009. "Assessing Long-Term Fiscal Developments: a New Approach," Working Papers 2009/19, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
    Other versions:
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