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Debt Sustainability and Financial Crises: Evidence from the GIIPS

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  • Gabriella Legrenzi

    ()
    (Keele University, UK; CESifo, Germany; The Rimini Centre for Economic Analysis (RCEA), Italy)

  • Costas Milas

    ()
    (University of Liverpool, UK; The Rimini Centre for Economic Analysis (RCEA), Italy; Eranistis.gr, Greece)

Abstract

We assess the sustainability of the public finances of Greece, Ireland, Italy, Portugal and Spain (GIIPS), allowing for possible non-linearities in the form of threshold behaviour of the fiscal authorities. We provide some evidence of fiscal sustainability when debt gets “too high” relative to a threshold which is not necessarily fixed but varies with the level of debt relative to its recent history and/or the occurrence of a financial crisis.

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 42_11.

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Date of creation: Sep 2011
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Handle: RePEc:rim:rimwps:42_11

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Keywords: debt sustainability; financial crisis;

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References

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  1. Sarno, Lucio, 2001. "The behavior of US public debt: a nonlinear perspective," Economics Letters, Elsevier, vol. 74(1), pages 119-125, December.
  2. Michael G. Arghyrou & Kul B Luintel, 2002. "Government Solvency: Revisiting some EMU Countries," Public Policy Discussion Papers 02-24, Economics and Finance Section, School of Social Sciences, Brunel University.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  4. Reinhart, Carmen M. & Rogoff, Kenneth S., 2010. "Growth in a Time of Debt," Scholarly Articles 11129154, Harvard University Department of Economics.
  5. Georgios Chortareas & George Kapetanios & Merih Uctum, 2008. "Nonlinear Alternatives to Unit Root Tests and Public Finances Sustainability: Some Evidence from Latin American and Caribbean Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(5), pages 645-663, October.
  6. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-78, May.
  7. 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.
  8. Bertola, Giuseppe & Drazen, Allan, 1991. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," CEPR Discussion Papers 599, C.E.P.R. Discussion Papers.
  9. Alfred Greiner & Uwe Köller & Willi Semmler, 2007. "Debt sustainability in the European Monetary Union: Theory and empirical evidence for selected countries," Oxford Economic Papers, Oxford University Press, vol. 59(2), pages 194-218, April.
  10. 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.
  11. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June.
  12. Antonio Afonso, 2004. "Fiscal Sustainability: the Unpleasant European Case," Money Macro and Finance (MMF) Research Group Conference 2004 57, Money Macro and Finance Research Group.
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Citations

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Cited by:
  1. Afonso, António & Jalles, João Tovar, 2012. "Revisiting fiscal sustainability: panel cointegration and structural breaks in OECD countries," Working Paper Series 1465, European Central Bank.
  2. Aviral Kumar Tiwari, 2012. "Debt Sustainability in India: Empirical Evidence Estimating Time-Varying Parameters," Economics Bulletin, AccessEcon, vol. 32(2), pages 1133-1141.
  3. Ruthira Naraidoo & Leroi Raputsoane, 2013. "Debt sustainability and financial crises in South Africa," Working Papers 201352, University of Pretoria, Department of Economics.

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