Fiscal Sustainability of the European Welfare State: Evidence from Cumulative Excess of the Primary Balance
AbstractTanzi and Schuknecht (1997) pointed out that one of the key features of welfare state is to run large fiscal deficits and public debt. This can be explained considering the rise of the social transfers that led to an overall increase of the total government spending. Growing public debt can generate fiscal sustainability issues in the long run. Therefore, the aim of this paper is to study fiscal sustainability using an indicator named the Cumulative Excess of the Primary Balance (CEPB) that avoids the shortcomings induced by non-stationary time series or Structural breaks when applying classical econometric tools. CEPB is derived from a simple Dynamic model of public debt that allows estimating the primary balance that stabilizes public debt. Applying CEPB for annual data extracted for 1980-2007 period for two distinct European welfare regimes, we find that the Nordic welfare states are less exposed to fiscal Sustainability issues in the long run than the Conservative countries.
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Bibliographic InfoPaper provided by Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE) in its series Working Papers with number 27/2012.
Length: 13 pages
Date of creation: 12 Jun 2012
Date of revision:
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Fiscal sustainability; budgetary deficit; primary balance; public debt; welfare state;
Find related papers by JEL classification:
- 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
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-MAC-2013-06-16 (Macroeconomics)
- NEP-PBE-2013-06-16 (Public Economics)
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