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Fiscal Sustainability: Another Look at the European case

Author

Listed:
  • Thornton, John

    () (Bangor Business School, Bangor University)

  • Adedeji, Olumuyiwa S.

    () (International Monetary Fund)

Abstract

Recent research using time series cointegration techniques has suggested that fi scal policy in the EU-15 countries may have been on unsustainable path during 1970-2003. However, the time series techniques employed are know to have low power in small samples. The results from employing panel cointegration techniques that have higher power in small samples indicate that government revenue and expenditure in these countries were non-stationary and cointegrated series, and that the long-run cointegrating relation was consistent with ‘strong’ fi scal sustainability.

Suggested Citation

  • Thornton, John & Adedeji, Olumuyiwa S., 2009. "Fiscal Sustainability: Another Look at the European case," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 62(1), pages 95-102.
  • Handle: RePEc:ris:ecoint:0015
    as

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    References listed on IDEAS

    as
    1. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
    2. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 1-19, March.
    3. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    4. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    5. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-445, July.
    6. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-417, October.
    7. Cipollini, Andrea, 2001. "Testing for Government Intertemporal Solvency: A Smooth Transition Error Correction Model Approach," Manchester School, University of Manchester, vol. 69(6), pages 643-655, December.
    8. Banerjee, Anindya, 1999. " Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 607-629, Special I.
    9. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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    More about this item

    Keywords

    European Union; Fiscal Policy Sustainability; Panel Cointegration;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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