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Appraising fiscal reaction functions

Author

Listed:
  • António Afonso

    () (ISEG/TULisbon; UECE; European Central Bank)

  • João Jalles

    () (University of Aberdeen, Business School; European Central Bank)

Abstract

We estimate fiscal responses for an OECD panel, accounting for cross-country interactions, and also estimate the fiscal responses in a panel VAR. We find that governments have increased primary balances when facing higher government indebtedness, implying a Ricardian fiscal regime, while primary balances have improved to reduce government debt. These results hold for the single regression panel analysis and for the panel VAR.

Suggested Citation

  • António Afonso & João Jalles, 2011. "Appraising fiscal reaction functions," Economics Bulletin, AccessEcon, vol. 31(4), pages 3320-3330.
  • Handle: RePEc:ebl:ecbull:eb-11-00815
    as

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    References listed on IDEAS

    as
    1. António Afonso, 2008. "Ricardian fiscal regimes in the European Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(3), pages 313-334, July.
    2. Pesaran, M. Hashem & Smith, Ron, 1995. "The role of theory in econometrics," Journal of Econometrics, Elsevier, vol. 67(1), pages 61-79, May.
    3. Markus Eberhardt & Francis Teal, 2011. "Econometrics For Grumblers: A New Look At The Literature On Cross‐Country Growth Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 109-155, February.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    6. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
    7. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
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    Citations

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    Cited by:

    1. Piotr Ciżkowicz & Andrzej Rzońca & Rafał Trzeciakowski, 2015. "Windfall of Low Interest Payments and Fiscal Sustainability in the Euro Area: Analysis through Panel Fiscal Reaction Functions," Kyklos, Wiley Blackwell, vol. 68(4), pages 475-510, November.
    2. António Afonso & João Tovar Jalles, 2012. "Revisiting fiscal sustainability: panel cointegration and structural breaks in OECD countries," Working Papers Department of Economics 2012/29, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    3. Shijaku, Gerti, 2014. "Fiscal policy, output and financial stress in the case of developing and emerging European economies: a threshold VAR approach," MPRA Paper 79139, University Library of Munich, Germany.
    4. Truong Nguyen, 2013. "Estimating India's Fiscal Reaction Function," ASARC Working Papers 2013-05, The Australian National University, Australia South Asia Research Centre.
    5. Süleyman Bolat & Aviral Kumar Tiwari & Mihai Mutascu, 2014. "The behaviour of US and UK public debt: further evidence based on time varying parameters," Working Papers halshs-01107962, HAL.
    6. Shijaku, Gerti, 2012. "Sustainability of fiscal policy: the case of Albania," MPRA Paper 79089, University Library of Munich, Germany.
    7. Checherita-Westphal, Cristina & Žďárek, Václav, 2017. "Fiscal reaction function and fiscal fatigue: evidence for the euro area," Working Paper Series 2036, European Central Bank.
    8. Plödt, Martin & Reicher, Claire A., 2015. "Estimating fiscal policy reaction functions: The role of model specification," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 113-128.

    More about this item

    Keywords

    fiscal regimes; Panel VAR; cross-sectional dependence;

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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