Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Retrospective Approach on Government Response to Increasing Public Debt: Empirical Evidence for European Countries

Contents:

Author Info

  • Stoian, Andreea

    ()
    (Bucharest Academy of Economic Studies)

Abstract

Many researchers have been focused for decades on the issue of public debt considering its effect on fiscal sustainability in the long run. There is a recent body of research showing that the current financial crises will lead to a considerable increase of public debt in a number of advanced economies. Many European countries have confronted with large and increasing public debt stocks that overrated GDP. Considering that, the question on how government should address this problem arises. Theoretically speaking, governments should increase/decrease primary surplus/deficit, and the response should be immediate. The aim of this paper is to investigate government’s reaction to increasing public debt for European Union countries. Fiscal reaction function is employed on annual data spanned mostly on 1980.2012. Empirical evidence shows various results. In the case of Germany fiscal policy is pro-cyclical, but the results reveal no significant reaction of government to changes in public debt. For Belgium and Denmark the test shows a long run relationship between cyclically adjusted primary balance and public debt and error correction term indicates the existence of adjustment mechanism in the short term for assessing primary surplus. In the cases of Spain and France the response is opposite as expected and parameters point out on difficulties in achieving a cointegrated relation. For Greece and Italy test rejects any cointegration relationship and the use of fiscal rule reveals that government has difficulties in generating primary surplus. This conclusion is also valid in the case of Portugal and the UK. In the cases of Sweden and Ireland government has the ability to generate primary surplus larger than the required one that stabilizes public debt.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://wwwa.uportu.pt/siaa/Investigacao/WP_15_2011.pdf
File Function: Full text
Download Restriction: no

Bibliographic Info

Paper provided by Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE) in its series Working Papers with number 15/2011.

as in new window
Length: 29 pages
Date of creation: 30 May 2011
Date of revision:
Handle: RePEc:ris:cigewp:2011_015

Contact details of provider:
Postal: Universidade Portucalense – Economics and Management Department (CIGE – Centro de Investigação em Gestão e Economia), Rua Dr. António Bernardino de Almeida, 541-619, 4200 – 072 Porto, Portugal
Web page: http://www.uportu.pt/site-scripts/centro_pagina.asp?codmenu=71&codcentro=24
More information through EDIRC

Related research

Keywords: public debt; fiscal policy; primary balance; fiscal reaction function; fiscal sustainability;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Iulian Viorel BRAȘOVEANU & Laura OBREJA BRAŞOVEANU, 2012. "Fiscal Policy In European Union Countries – A Comparative Analysis Of Adjustment And Expansions Fiscal Policy Episodes," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, ScientificPapers.org, vol. 2(3), pages 3, June.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ris:cigewp:2011_015. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luis Pacheco).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.