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Fiscal consolidation in Spain: dynamic interdependence of public spending and revenues

Author

Listed:
  • Francisco de Castro

    () (Banco de España)

  • José Manuel González-Páramo

    () (Universidad Complutense de Madrid)

  • Pablo Hernández de Cos

    () (Banco de España)

Abstract

Meeting fiscal targets set out in the Stability and Growth Pact for EMU countries requires the correction of fiscal imbalances. We consider what is the most efficient strategy to achieve permanent reductions in fiscal defficits in Spain. We analyse the possible interdependence between expenditure and revenues by performing standard Granger causality tests. We find that there is a bias towards defficit in public sector size and long-run bidirectional causality between public revenues and expenditure, although the direction of causality seems to hold mainly from public expenditure to revenues. Achieving fiscal consolidation should be based reducing structural public expenditure. (Copyright: Fundación SEPI)

Suggested Citation

  • Francisco de Castro & José Manuel González-Páramo & Pablo Hernández de Cos, 2004. "Fiscal consolidation in Spain: dynamic interdependence of public spending and revenues," Investigaciones Economicas, Fundación SEPI, vol. 28(1), pages 193-207, January.
  • Handle: RePEc:iec:inveco:v:28:y:2004:i:1:p:193-207
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    References listed on IDEAS

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    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    5. Granger, C. W. J. & Newbold, Paul, 1986. "Forecasting Economic Time Series," Elsevier Monographs, Elsevier, edition 2, number 9780122951831 edited by Shell, Karl.
    6. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    7. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    8. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    9. Francisco de Castro & José M. González-Páramo & Pablo Hernández de Cos, 2001. "Evaluating the dynamics of fiscal policy in Spain: patterns of interdependence and consistency of public expenditure and revenues," Working Papers 0103, Banco de España;Working Papers Homepage.
    10. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Citations

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    Cited by:

    1. Francisco de Castro, 2006. "The macroeconomic effects of fiscal policy in Spain," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 913-924.
    2. de Castro, Francisco & Hernández de Cos, Pablo, 2008. "The economic effects of fiscal policy: The case of Spain," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1005-1028, September.
    3. Sebastian Hauptmeier & Martin Heipertz & Ludger Schuknecht, 2007. "Expenditure Reform in Industrialised Countries: A Case-Study Approach," Fiscal Studies, Institute for Fiscal Studies, pages 293-342.
    4. Francisco de Castro & Pablo Hernández de Cos, 2006. "The economic effects of exogenous fiscal shocks in Spain: a SVAR approach," Working Papers 0604, Banco de España;Working Papers Homepage.
    5. Francisco de Castro & Francisco Martí & Antonio Montesinos & Javier J. Pérez & A. Jesús Sánchez-Fuentes, 2014. "Fiscal policies in Spain: Main stylises facts revisited," Working Papers 1408, Banco de España;Working Papers Homepage.
    6. Magazzino, Cosimo, 2010. "Public expenditure and revenue in Italy, 1862-1993," MPRA Paper 27308, University Library of Munich, Germany.
    7. repec:ksp:journ1:v:4:y:2017:i:1:p:53-70 is not listed on IDEAS
    8. Francisco de Castro, 2003. "Non-Keynesian effects of public expenditure in Spain," Applied Economics Letters, Taylor & Francis Journals, vol. 10(10), pages 651-655.

    More about this item

    Keywords

    Fiscal consolidation; causality; cointegration;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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