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Should we care for structural breaks when assessing fiscal sustainability?

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  • António Afonso
  • Christophe Rault

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Abstract

We apply recent panel cointegration methods to a structural equation between government expenditure and revenue. Allowing for multiple endogenous breaks and after computing appropriate bootstrap critical values, we conclude for fiscal sustainability in the overall EU15 panel.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp902.

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Length: pages
Date of creation: 01 Nov 2008
Date of revision:
Handle: RePEc:wdi:papers:2008-902

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Keywords: fiscal sustainability; EU; panel cointegration.;

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  1. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-45, July.
  2. Peter Pedroni, 2004. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis," Department of Economics Working Papers 2004-15, Department of Economics, Williams College.
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  5. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
  6. Anindya Banerjee & Josep Lluís Carrion-i-Silvestre, 2006. "Cointegration in Panel Data with Breaks and Cross-Section Dependence," Economics Working Papers ECO2006/5, European University Institute.
  7. Westerlund, Joakim & Edgerton, David L., 2007. "A panel bootstrap cointegration test," Economics Letters, Elsevier, vol. 97(3), pages 185-190, December.
  8. Silika Prohl & Friedrich G. Schneider, 2006. "Sustainability of Public Debt and Budget Deficit: Panel cointegration analysis for the European Union Member countries," Economics working papers 2006-10, Department of Economics, Johannes Kepler University Linz, Austria.
  9. Haug, Alfred A, 1991. "Cointegration and Government Borrowing Constraints: Evidence for the United States," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 97-101, January.
  10. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  11. Kyung-So Im & Junsoo Lee & Margie Tieslau, 2005. "Panel LM Unit-root Tests with Level Shifts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 393-419, 06.
  12. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
  13. MOON, Hyungsik Roger & PERRON, Benoit., 2002. "Testing for a Unit Root in Panels with Dynamic Factors," Cahiers de recherche 2002-18, Universite de Montreal, Departement de sciences economiques.
  14. Joakim Westerlund, 2006. "Testing for Panel Cointegration with Multiple Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(1), pages 101-132, 02.
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  16. 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.
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Cited by:
  1. António Afonso & Christophe Rault, 2008. "3-Step Analysis of Public Finances Sustainability: the Case of the European Union," CESifo Working Paper Series 2393, CESifo Group Munich.
  2. Niklas Potrafke & Markus Reischmann, 2012. "Fiscal Equalization Schemes and Fiscal Sustainability," Ifo Working Paper Series Ifo Working Paper No. 141, Ifo Institute for Economic Research at the University of Munich.
  3. Bogdan Dima & Oana Lobont & Cristina Nicolescu, 2009. "The Fiscal Revenues And Public Expenditures: Is Their Evolution Sustenable? The Romanian Case," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(11), pages 42.

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