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Fiscal Sustainability in the European Countries: A Panel ARDL Approach and a Dynamic Panel Threshold Model

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  • María del Carmen Ramos-Herrera

    (Department of Economic Analysis, Economic Theory, Autonomous University of Madrid, Cantoblanco, 28049 Madrid, Spain)

  • María A. Prats

    (Department of Applied Economics, University of Murcia, Avda. Teniente Flomesta, 5, 30003 Murcia, Spain)

Abstract

We analyze the fiscal sustainability hypothesis for a panel of 20 European Union countries from 2000 to 2019. In particular, we employ new econometric methodologies that, to the best of our knowledge, are applied for the first time to the study of sovereign fiscal policy sustainability in these economies. Specifically, we estimate the panel ARDL technique, distinguishing between short- and long-run coefficients because the order of integration of our variables is not the same. Moreover, a panel threshold model with endogeneity is considered to investigate whether, departing from a particular threshold, there is different behavior between the government primary balance and public debt, both taken as a ratio of potential GDP. Finally, the panel Granger causality test is implemented to determine the direction of causality or the existence of bidirectional causality.

Suggested Citation

  • María del Carmen Ramos-Herrera & María A. Prats, 2020. "Fiscal Sustainability in the European Countries: A Panel ARDL Approach and a Dynamic Panel Threshold Model," Sustainability, MDPI, Open Access Journal, vol. 12(20), pages 1-14, October.
  • Handle: RePEc:gam:jsusta:v:12:y:2020:i:20:p:8505-:d:428377
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