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Debt Sustainability in Selected Euro Area Countries: Empirical Evidence Estimating Time-Varying Parameters

Author

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  • Fincke Bettina

    (Bielefeld University)

  • Greiner Alfred

    (Bielefeld University)

Abstract

Testing for sustainability of public debt by analyzing how the primary surplus reacts to variations in debt, as suggested by Bohn (1998), has received great attention in economics literature. In this contribution, we apply that test to some countries of the euro area, including the PIIGS countries, where we allow for a time-varying reaction coefficient. We conclude that most economies are characterized by sustainable debt policies with the exception of Greece and possibly Italy. While Greece has clearly pursued an unsustainable debt policy, no clear-cut result can be obtained for Italy. For the latter country, the outcome crucially depends on the time period under consideration.

Suggested Citation

  • Fincke Bettina & Greiner Alfred, 2011. "Debt Sustainability in Selected Euro Area Countries: Empirical Evidence Estimating Time-Varying Parameters," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 15(3), pages 1-23, May.
    • Handle: RePEc:bpj:sndecm:v:15:y:2011:i:3:n:2
    DOI: 10.2202/1558-3708.1777
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    References listed on IDEAS

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    Cited by:

    1. Ata Ozkaya, 2013. "Public Debt Stock Sustainability in Selected OECD Countries," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(1), pages 31-49.
    2. Antonio Afonso & Jose Alves, 2015. "The Role of Government Debt in Economic Growth," Hacienda Pública Española / Review of Public Economics, IEF, vol. 215(4), pages 9-26, December.
    3. Campos, Eduardo Lima & Cysne, Rubens Penha, 2017. "A time-varying fiscal reaction function for Brazil," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 795, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    4. Greiner, Alfred, 2012. "Public debt in a basic endogenous growth model," Economic Modelling, Elsevier, vol. 29(4), pages 1344-1348.
    5. Akram, Vaseem & Rath, Badri Narayan, 2020. "What do we know about fiscal sustainability across Indian states?," Economic Modelling, Elsevier, vol. 87(C), pages 307-321.
    6. Abderrahim Chibi & Sidi Mohamed Chekouri & Mohamed Benbouziane, 2019. "The dynamics of fiscal policy in Algeria: sustainability and structural change," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-27, December.
    7. Ruthira Naraidoo & Leroi Raputsoane, 2015. "Debt Sustainability and Financial Crises in South Africa," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(1), pages 224-233, January.
    8. P.S. Renjith & K.R. Shanmugam, 2018. "Sustainable Debt Policies of Indian State Governments," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(2), pages 224-243, May.
    9. Alfons Weichenrieder & Jochen Zimmer, 2014. "Euro membership and fiscal reaction functions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 598-613, August.
    10. Gabriella Deborah Legrenzi & Costas Milas, 2011. "Debt Sustainability and Financial Crises: Evidence from the GIIPS," CESifo Working Paper Series 3594, CESifo.
    11. guo, Min & zhao, jizhi & huang, yixuan, 2014. "国家债务适度规模研究 —基于因子增强阈值模型 [a Study of Moderate Scale of Public Debt - Based on Factor-Augmented Threshold Model]," MPRA Paper 56067, University Library of Munich, Germany.
    12. Aviral Kumar Tiwari, 2012. "Debt Sustainability in India: Empirical Evidence Estimating Time-Varying Parameters," Economics Bulletin, AccessEcon, vol. 32(2), pages 1133-1141.
    13. Ata Ozkaya, 2013. "The Effects of Debt Intolerance and Public Debt Sustainability on Credit Ratings: Evidence From European Economies," Working Papers 011, Bahcesehir University, Betam.
    14. Christian Schoder, 2014. "The fundamentals of sovereign debt sustainability: evidence from 15 OECD countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(2), pages 247-271, May.
    15. Samia Omrane Belguith & Foued Badr Gabsi, 2019. "Public Debt Sustainability in Tunisia: Empirical Evidence Estimating Time-Varying Parameters," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(2), pages 550-560, June.
    16. Afonso, António & Jalles, João Tovar, 2012. "Revisiting fiscal sustainability: panel cointegration and structural breaks in OECD countries," Working Paper Series 1465, European Central Bank.
    17. Ulrich Haskamp, 2014. "Was Spanish fiscal policy sustainable?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(2), pages 273-286, May.
    18. Dumbraveanu Andrada-Alexandra, 2016. "The More, the Better: Life Satisfaction in the Bitter Welfare State," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 129(3), pages 1015-1038, December.
    19. Gabriella Legrenzi & Costas Milas, 2012. "Long-Run Debt Sustainability and Threshold Adjustments: Non-Linear Empirical Evidence from the GIIPS," Economics Bulletin, AccessEcon, vol. 32(3), pages 2586-2593.
    20. Charles, Don & McLean, Sheldon, 2018. "Caribbean development report: A perusal of public debt in the Caribbean and its impact on economic growth," Studies and Perspectives – ECLAC Subregional Headquarters for The Caribbean 43312, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    21. Ozkaya, Ata, 2013. "The Domestic Debt Intolerance and Bad Equilibrium: An Empirical Default Model," GIAM Working Papers 13-1, Galatasaray University Economic Research Center.
    22. Christos Avdoulas & Stelios Bekiros, 2018. "Nonlinear Forecasting of Euro Area Industrial Production Using Evolutionary Approaches," Computational Economics, Springer;Society for Computational Economics, vol. 52(2), pages 521-530, August.

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