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Was Spanish fiscal policy sustainable?

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  • Ulrich Haskamp

Abstract

Was unsustainable fiscal policy one of the reasons for the recent crisis in Spain? This is tested by examining how the government’s primary surplus is reacting to the debt-GDP ratio. Using different models for the explanatory variables and the consideration of the correct detrending method led to the result that Spanish fiscal policy reacted to higher debt by increased surpluses, and thus was sustainable. To deal with structural breaks in the models, firstly, a dummy for the recent financial crisis was added. Secondly, a Kalman (J Basic Eng 82(1):35–45, 1960 ) filter model allowing for time-varying coefficients was estimated to cope with remaining breaks. The reaction of Spanish fiscal policy on debt was found to be decreasing over time. However, it was still significantly positive, showing sustainability. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • 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.
    • Handle: RePEc:kap:empiri:v:41:y:2014:i:2:p:273-286
    DOI: 10.1007/s10663-013-9211-5
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    More about this item

    Keywords

    Fiscal policy; Sustainability; Public debt; Deficit; H62; E60;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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