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The quest for a fiscal rule: Italy, 1861-1998

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Author Info
Ricciuti, Roberto

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Abstract

The Italian fiscal history is characterised by a number of fiscal consolidations. In this paper we characterise fiscal policy in terms of non-linear deterministic processes. We find that government spending and taxes can be described as being non-linear trend stationary processes instead of unit roots. A long run equilibrium relationship - a non-linear co-trend - does exist between the two series, fulfilling the intertemporal government budget constraint. We interpret this result as evidence of a long run fiscal rule that different policy makers have adopted, putting public finance in balance.

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Paper provided by Department of Public Policy and Public Choice - POLIS in its series P.O.L.I.S. department's Working Papers with number 86.

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Length: 33 pages
Date of creation: Sep 2007
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Handle: RePEc:uca:ucapdv:86

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Related research
Keywords: taxes; government expenditure; intertemporal government budget constraint; non-linear trend stationarity; non-linear co-trending;

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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
N10 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - General, International, or Comparative

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  1. Robert J. Barro, 1986. "The Behavior of United States Deficits," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 361-394 National Bureau of Economic Research, Inc. [Downloadable!]
  2. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Oxford University Press, vol. 29(3), pages 429-45, July.
  3. Bennett T. McCallum, 1984. "Are Bond-Financed Deficits Inflationary? A Ricardian Analysis," NBER Working Papers 0905, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. 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.
  5. repec:bep:sndecm:6:2002:1:1003-1003 is not listed on IDEAS
  6. Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November. [Downloadable!] (restricted)
  7. Gael M. Martin, 2000. "US deficit sustainability: a new approach based on multiple endogenous breaks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 83-105. [Downloadable!]
    Other versions:
  8. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August. [Downloadable!] (restricted)
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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. Marchese, Carla, 2008. "The limits to growth then and now," P.O.L.I.S. department's Working Papers 105, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  2. Ticchi, Davide & Vindigni, Andrea, 2007. "War and endogenous democracy," P.O.L.I.S. department's Working Papers 97, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  3. Ottone, Stefania & Ponzano, Ferruccio & Ricciuti, Roberto, 2007. "Simulating voting rule reforms for the Italian parliament. An economic perspective," P.O.L.I.S. department's Working Papers 88, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  4. Ottone, Stefania & Ponzano, Ferruccio, 2008. "How People perceive the Welfare State. A real effort experiment," P.O.L.I.S. department's Working Papers 101, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  5. Ottone, Stefania & Ponzano, Ferruccio, 2007. "Non-self-centered inequity aversion matters. A model," P.O.L.I.S. department's Working Papers 91, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  6. Breton, Albert & Scott, Anthony & Fraschini, Angela, 2007. "Explaining differences in environmental governance patterns between Canada, Italy and the United States," P.O.L.I.S. department's Working Papers 87, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  7. Privileggi, Fabio, 2007. "The cutoff policy of taxation when CRRA taxpayers differ in risk aversion coefficients and income: a proof," P.O.L.I.S. department's Working Papers 99, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  8. Montefiori, Marcello & Resta, Marina, 2008. "Social influence and neighbourhood effects in the health care market," P.O.L.I.S. department's Working Papers 98, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  9. Giandomenico Piluso & Roberto Ricciuti, 2008. "Fiscal Policy and the Banking System in Italy. Have Taxes, Public Spending and Banks been Procyclical in the Long-Run?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  10. Acemoglu, Daron & Ticchi, Davide & Vindigni, Andrea, 2008. "A theory of military dictatorships," P.O.L.I.S. department's Working Papers 100, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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