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An Inquiry into the Sustainability of German Fiscal Policy: Some Time-Series Tests

Author

Listed:
  • Alfred Greiner

    (University of Augsburg, Germany)

  • Willi Semmler

    (University of Bielefeld, Germany, and the New School for Social Research, New York)

Abstract

Sustainability of public debt has become a major issue in the debate over the success of the European Monetary Union. The authors pursue the question of whether Germany’s fiscal policy is sustainable. With sustainability of a given fiscal policy, the authors refer to a policy that satisfies the intertemporal budget constaint of the government, known as the no-Ponzi game condition. Although this question has been econometrically studied for the United States in many studies, it has not yet been pursued with German time-series data. Using annual data from 1955 to 1994, the results seem to indicate that the intertemporal budget constraint for Germany is not met. In particular, the deficits in the period after 1989 appear to have contributed to that trend. Although the question of whether the latter increase in debt will have a lasting effect is still an important issue, the methodology proposed here may be useful for studying other countries. The authors also briefly discuss the macroeconomic effects of adjustment policies.

Suggested Citation

  • Alfred Greiner & Willi Semmler, 1999. "An Inquiry into the Sustainability of German Fiscal Policy: Some Time-Series Tests," Public Finance Review, , vol. 27(2), pages 220-236, March.
  • Handle: RePEc:sae:pubfin:v:27:y:1999:i:2:p:220-236
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    Cited by:

    1. Stoian, Andreea & Obreja Brasoveanu, Laura & Dumitrescu, Bogdan & Brasoveanu, Iulian, 2015. "A new framework for detecting the short term fiscal vulnerability for the European Union countries," MPRA Paper 63537, University Library of Munich, Germany.
    2. Mark J. Holmes & Theodore Panagiotidis & Jesus Otero, 2008. "Are EU budgets stationary?," Discussion Paper Series 2008_07, Department of Economics, University of Macedonia, revised Sep 2008.
    3. Willi Semmler & Wenlang Zhang, 2004. "Monetary and Fiscal Policy Interactions in the Euro Area," Economic Change and Restructuring, Springer, vol. 31(2), pages 205-227, June.
    4. Niklas Potrafke & Markus Reischmann, 2012. "Fiscal Equalization Schemes and Fiscal Sustainability," ifo Working Paper Series 141, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Semmler, Willi & Wohrmann, Peter, 2004. "Credit risk and sustainable debt: a model and estimations of why the Euro is stable in the long-run," Economic Modelling, Elsevier, vol. 21(6), pages 1145-1160, December.
    6. Mark Holmes & Jesús Otero & Theodore Panagiotidis, 2010. "Are EU budget deficits stationary?," Empirical Economics, Springer, vol. 38(3), pages 767-778, June.
    7. Alfred Greiner & Uwe Koeller & Willi Semmler, 2005. "Testing Sustainability of German Fiscal Policy. Evidence for the Period 1960 – 2003," CESifo Working Paper Series 1386, CESifo Group Munich.
    8. Juan Carlos Cuestas & Karsten Staehr, 2013. "Fiscal shocks and budget balance persistence in the EU countries from Central and Eastern Europe," Applied Economics, Taylor & Francis Journals, vol. 45(22), pages 3211-3219, August.
    9. Wolfgang Kitterer, 2007. "Nachhaltige Finanz- und Investitionspolitik der Bundesländer," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(s1), pages 53-83, April.
    10. Gerrit B. Koester & Christoph Priesmeier, 2013. "Does Wagner´s Law Ruin the Sustainability of German Public Finances?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 69(3), pages 256-288, September.
    11. Gang Gong & Alfred Greiner & Willi Semmler, 2001. "Growth Effects of Fiscal Policy and Debt Sustainability in the EU," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(1), pages 3-19, March.
    12. Michael Getzner & Ernst Glatzer & Reinhard Neck, 2001. "On the Sustainability of Austrian Budgetary Policies," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(1), pages 21-40, March.
    13. Frederico Gonzaga Jayme Junior, 2001. "External debt sustainability: empirical evidence in Brazil," Textos para Discussão Cedeplar-UFMG td154, Cedeplar, Universidade Federal de Minas Gerais.
    14. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 1-19, March.
    15. Alfred Greiner & Uwe Koeller & Willi Semmler, 2006. "Testing the sustainability of German fiscal policy: evidence for the period 1960–2003," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 33(2), pages 127-140, June.
    16. Greiner, Alfred & Semmler, Willi, 2000. "Endogenous Growth, Government Debt and Budgetary Regimes," Journal of Macroeconomics, Elsevier, vol. 22(3), pages 363-384, July.
    17. Johann Bröthaler & Michael Getzner & Gottfried Haber, 2015. "Sustainability of local government debt: a case study of Austrian municipalities," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 521-546, August.

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