IDEAS home Printed from https://ideas.repec.org/a/sgh/gosnar/y2022i3p67-83.html
   My bibliography  Save this article

The Evolution of Fiscal Policy and Public Debt Dynamics: The Case of Sweden

Author

Listed:
  • Anna Staszewska-Bystrova
  • Victor Bystrov

Abstract

The aim of the paper is to evaluate the long-run sustainability of fiscal policy in Sweden using a time-varying fiscal reaction function. Sufficient sustainability conditions are discussed, and it is demonstrated that fiscal sustainability is consistent with various types of transient fiscal policy and temporary debt expansions. The fiscal response to the debt-to-income ratio is estimated recursively using constant gain least squares. The evolution of fiscal policy in Sweden is evaluated over the period from 1850 to 2014. It is demonstrated that a sustainable fiscal policy can be an outcome of a long-run process of learning. In this process, fiscal authorities are forced to adapt their policies to changes in the economic and political environment. It is concluded that fiscal sustainability should be judged by the eventual ability of fiscal authorities to stabilise debt rather than by transient debt dynamics.

Suggested Citation

  • Anna Staszewska-Bystrova & Victor Bystrov, 2022. "The Evolution of Fiscal Policy and Public Debt Dynamics: The Case of Sweden," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 67-83.
    • Handle: RePEc:sgh:gosnar:y:2022:i:3:p:67-83
    as

    Download full text from publisher

    File URL: https://gnpje.sgh.waw.pl/pdf-151794-80851
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 949-963.
    2. Davig, Troy & Leeper, Eric M., 2011. "Monetary-fiscal policy interactions and fiscal stimulus," European Economic Review, Elsevier, vol. 55(2), pages 211-227, February.
    3. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    4. Aldama, Pierre & Creel, Jérôme, 2019. "Fiscal policy in the US: Sustainable after all?," Economic Modelling, Elsevier, vol. 81(C), pages 471-479.
    5. Donald W. K. Andrews, 2003. "Tests for Parameter Instability and Structural Change with Unknown Change Point: A Corrigendum," Econometrica, Econometric Society, vol. 71(1), pages 395-397, January.
    6. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2001. "Is the Price Level Determined by the Needs of Fiscal Solvency?," American Economic Review, American Economic Association, vol. 91(5), pages 1221-1238, December.
    7. James D. Hamilton, 2018. "Why You Should Never Use the Hodrick-Prescott Filter," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 831-843, December.
    8. Branch, William A. & Evans, George W., 2006. "A simple recursive forecasting model," Economics Letters, Elsevier, vol. 91(2), pages 158-166, May.
    9. George W. Evans, 2001. "Expectations in Macroeconomics. Adaptive versus Eductive Learning," Revue Économique, Programme National Persée, vol. 52(3), pages 573-582.
    10. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-271, February.
    11. Cragg, John G. & Donald, Stephen G., 1993. "Testing Identifiability and Specification in Instrumental Variable Models," Econometric Theory, Cambridge University Press, vol. 9(2), pages 222-240, April.
    12. repec:hal:spmain:info:hdl:2441/7suq9gqkp186e8d6eou29dipgk is not listed on IDEAS
    13. Englund, Peter, 1999. "The Swedish Banking Crisis: Roots and Consequences," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 15(3), pages 80-97, Autumn.
    14. Blix, Mårten, 1999. "Forecasting Swedish Inflation With a Markov Switching VAR," Working Paper Series 76, Sveriges Riksbank (Central Bank of Sweden).
    15. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    16. Bystrov, Victor & Mackiewicz, Michał, 2020. "Recurrent explosive public debts and the long-run fiscal sustainability," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 437-450.
    17. repec:spo:wpmain:info:hdl:2441/7suq9gqkp186e8d6eou29dipgk is not listed on IDEAS
    18. Pierre Aldama & Jérôme Creel, 2017. "Why Fiscal Regimes Matter for Fiscal Sustainability: An Application to France," Working Papers 2017.01, International Network for Economic Research - INFER.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Staszewska-Bystrova, Anna & Bystrov, Victor, . "Ewolucja polityki fiskalnej i dynamika długu publicznego: przypadek Szwecji," Gospodarka Narodowa-The Polish Journal of Economics, Szkoła Główna Handlowa w Warszawie / SGH Warsaw School of Economics, vol. 2022(3).
    2. Canofari, Paolo & Marini, Giancarlo & Piergallini, Alessandro, 2020. "Financial Crisis and Sustainability of US Fiscal Deficit: Indicators or Tests?," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 192-204.
    3. Todd E. Clark & Michael W. McCracken, 2006. "Forecasting of small macroeconomic VARs in the presence of instabilities," Research Working Paper RWP 06-09, Federal Reserve Bank of Kansas City.
    4. Pincheira-Brown, Pablo & Selaive, Jorge & Nolazco, Jose Luis, 2019. "Forecasting inflation in Latin America with core measures," International Journal of Forecasting, Elsevier, vol. 35(3), pages 1060-1071.
    5. James H. Stock & Mark W. Watson, 2007. "Why Has U.S. Inflation Become Harder to Forecast?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 3-33, February.
    6. Maciej WYSOCKI & Cezary WÓJCIK, 2021. "Fiscal Sustainability in Poland: How Did the Public Policy Shift of 2016–2019 Impact the Country’s Long-Term," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 6, pages 777-798.
    7. Giancarlo Marini & Alessandro Piergallini, 2008. "Indicators and Tests of Fiscal Sustainability: An Integrated Approach," CEIS Research Paper 111, Tor Vergata University, CEIS, revised 11 Jul 2008.
    8. Aldama, Pierre & Creel, Jérôme, 2019. "Fiscal policy in the US: Sustainable after all?," Economic Modelling, Elsevier, vol. 81(C), pages 471-479.
    9. Dandan Liu, 2011. "Learning and Estimation of the New Keynesian Phillips Curve Models," Southern Economic Journal, John Wiley & Sons, vol. 78(2), pages 382-396, October.
    10. Benjamin Owusu & Bettina Bökemeier & Alfred Greiner, 2023. "Assessing nonlinearities and heterogeneity in debt sustainability analysis: a panel spline approach," Empirical Economics, Springer, vol. 64(3), pages 1315-1346, March.
    11. González-Rivera, Gloria & Sun, Yingying, 2017. "Density forecast evaluation in unstable environments," International Journal of Forecasting, Elsevier, vol. 33(2), pages 416-432.
    12. John M. Maheu & Stephen Gordon, 2008. "Learning, forecasting and structural breaks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 553-583.
    13. Adriana Cornea‐Madeira & João Madeira, 2022. "Econometric Analysis of Switching Expectations in UK Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 651-673, June.
    14. Chengsi Zhang & Joel Clovis, 2009. "Modeling China Inflation Persistence," Annals of Economics and Finance, Society for AEF, vol. 10(1), pages 89-110, May.
    15. Öğünç, Fethi & Akdoğan, Kurmaş & Başer, Selen & Chadwick, Meltem Gülenay & Ertuğ, Dilara & Hülagü, Timur & Kösem, Sevim & Özmen, Mustafa Utku & Tekatlı, Necati, 2013. "Short-term inflation forecasting models for Turkey and a forecast combination analysis," Economic Modelling, Elsevier, vol. 33(C), pages 312-325.
    16. Kyung-woo Lee & Jong-Hee Kim & Taeyoon Sung, 2018. "A test of fiscal sustainability in the EU countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(5), pages 1170-1196, October.
    17. Zhengyang Jiang & Hanno Lustig & Stijn Van Nieuwerburgh & Mindy Z. Xiaolan, 2020. "Manufacturing Risk-free Government Debt," NBER Working Papers 27786, National Bureau of Economic Research, Inc.
    18. Thomas Obst, 2022. "Dynamic version of Okun’s law in the EU15 countries—The role of delays in the unemployment‐output nexus," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(2), pages 225-241, May.
    19. Canzoneri, Matthew & Cumby, Robert & Diba, Behzad & López-Salido, David, 2011. "The role of liquid government bonds in the great transformation of American monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 35(3), pages 282-294, March.
    20. Jean Boivin & Marc P. Giannoni, 2007. "Global Forces and Monetary Policy Effectiveness," NBER Chapters, in: International Dimensions of Monetary Policy, pages 429-478, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sgh:gosnar:y:2022:i:3:p:67-83. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Grzegorz Konat (email available below). General contact details of provider: https://edirc.repec.org/data/sgwawpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.