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The relationship between debt level and fiscal sustainability in OECD countries

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Author Info

  • Mariam Camarero

    ()
    (Department of Economics, Universitat Jaume I, Castellón, Spain)

  • Josep Lluís Carrion-i-Silvestre

    ()
    (Department of Econometrics, Statistics and Spanish Economy, University of Barcelona, Spain)

  • Cecilio Tamarit

    ()
    (Department of Applied Economics II, University of Valencia, Spain)

Abstract

In this paper we unify the traditional approaches to testing for fiscal sustainability considering the stock-flow system that fiscal variables configure. Our approach encompasses previous ways of testing for sustainability. The results obtained for a group of 17 OECD countries point to weak fiscal sustainability, as well as to the existence of cointegration between deficit and debt, confirming the relevance of the stock-flow approach. Allowing for structural breaks and multicointegration turns out to be of critical importance to assess whether the fiscal authorities apply their policies looking for sustainability and whether, simultaneously, they try to stabilize real debt target levels.

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Bibliographic Info

Paper provided by Economics Department, Universitat Jaume I, Castellón (Spain) in its series Working Papers with number 2013/10.

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Length: 54 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:jau:wpaper:2013/10

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Keywords: fiscal sustainability; cointegration; unit roots; structural breaks;

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  1. 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.
  2. Vanessa Berenguer‐Rico & Josep Lluís Carrion‐i‐Silvestre, 2011. "Regime shifts in stock–flow I(2)–I(1) systems: the case of US fiscal sustainability," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(2), pages 298-321, March.
  3. Perron, Pierre & Yabu, Tomoyoshi, 2009. "Testing for Shifts in Trend With an Integrated or Stationary Noise Component," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(3), pages 369-396.
  4. Clemente, Jesus & Montanes, Antonio & Reyes, Marcelo, 1998. "Testing for a unit root in variables with a double change in the mean," Economics Letters, Elsevier, vol. 59(2), pages 175-182, May.
  5. Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-20, July.
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