A Retrospective Approach on Assessing Fiscal Vulnerability: Empirical Evidence for Overindebted European Countries
Fiscal policy in advanced economies confronted with growing challenges for the last decades, given by the increasing of public debt, ageing population and a pro-cyclical fiscal policy. These went to large deficits and public debt stocks. Consequently, the exposure to liquidity and/or solvency risks increased. In this context, the question of how vulnerable fiscal policy is naturally arises. The aim of this paper is to present a methodology for assessing fiscal vulnerability. The methodology bases on a simple public debt dynamic model with growing economy, increasing public debt and inflation rate that allows the estimation of a required primary balance. Comparing with the current primary balance, one can said that fiscal policy is vulnerable whenever the required primary balance is larger than the current one. The methodology is applied on annual data spanned on 1970-2012 for Belgium, Ireland, Greece, Italy, Hungary, Malta and the Netherlands. The results show that fiscal policy was vulnerable in many of the years from the period under review. Moreover, excepting Belgium and Italy, for the rest of the countries, fiscal vulnerability occurred mostly after the Maastricht Treaty was enforced. Consequently, the constraint imposed to limit the public debt to 60% of GDP does not necessarily imply a sound fiscal policy.
Volume (Year): 4 (2011)
Issue (Month): 3(15) ()
|Contact details of provider:|| Postal: |
Phone: 004 0256 592506
Fax: 004 0256 5925002
Web page: http://www.feaa.uvt.ro
More information through EDIRC
|Order Information:|| Postal: 16 J. H. Pestalozzi Street, 300115, Timisoara, Romania|
Web: http://www.tje.uvt.ro Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Afonso, António & Agnello, Luca & Furceri, Davide & Sousa, Ricardo M., 2011.
"Assessing long-term fiscal developments: A new approach,"
Journal of International Money and Finance,
Elsevier, vol. 30(1), pages 130-146, February.
- Afonso, António & Agnello, Luca & Furceri, Davide & Sousa, Ricardo M., 2009. "Assessing long-term fiscal developments - a new approach," Working Paper Series 1032, European Central Bank.
- António Afonso & Luca Agnello & Davide Furceri & Ricardo M. Sousa, 2009. "Assessing Long-Term Fiscal Developments: a New Approach," NIPE Working Papers 7/2009, NIPE - Universidade do Minho.
- António Afonso & Luca Agnello & Davide Furceri & Ricardo M. Sousa, 2009. "Assessing Long-Term Fiscal Developments: a New Approach," Working Papers Department of Economics 2009/19, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
- Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2013.
"Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies,"
Royal Economic Society, vol. 0, pages F4-F30, 02.
- Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2011. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," NBER Working Papers 16782, National Bureau of Economic Research, Inc.
- Claeys, Peter, 2007.
"Sustainability of EU Fiscal Policies: a Panel Test,"
Journal of Economic Integration,
Center for Economic Integration, Sejong University, vol. 22, pages 112-127.
- Peter Claeys, 2007. "Sustainability of EU fiscal policies, a panel test," IREA Working Papers 200702, University of Barcelona, Research Institute of Applied Economics, revised Jan 2007.
- Alberto Alesina, 2000. "The Political Economy of the Budget Surplus in the U.S," NBER Working Papers 7496, National Bureau of Economic Research, Inc.
- Murray Petrie & Richard Hemming, 2000. "A Framework for Assessing Fiscal Vulnerability," IMF Working Papers 00/52, International Monetary Fund.
- Corsetti, Giancarlo & Roubini, Nouriel, 1996. "European versus American Perspectives on Balanced-Budget Rules," American Economic Review, American Economic Association, vol. 86(2), pages 408-13, May.
- Zaijin Zhan & Robert C. York, 2009. "Fiscal Vulnerability and Sustainability in Oil-Producing Sub-Saharan African Countries," IMF Working Papers 09/174, International Monetary Fund.
- Evan Tanner & Issouf SamakÃ©, 2006.
"Probabilistic Sustainability of Public Debt; A Vector Autoregression Approach for Brazil, Mexico, and Turkey,"
IMF Working Papers
06/295, International Monetary Fund.
- Evan Tanner & Issouf Samake, 2008. "Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey," IMF Staff Papers, Palgrave Macmillan, vol. 55(1), pages 149-182, April.
- António Afonso, 2000. "Fiscal policy sustainability: some unpleasant European evidence," Working Papers Department of Economics 2000/12, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
- Alberto Alesina, 2000. "The Political Economy of the Budget Surplus in the United States," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 3-19, Summer.
- Jeffrey A. Frankel & George Saravelos, 2010. "Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis," NBER Working Papers 16047, National Bureau of Economic Research, Inc.
- Alessio Ciarlone & Giorgio Trebeschi, 2006. "A Multinomial Approach to Early Warning Systems for Debt Crises," Temi di discussione (Economic working papers) 588, Bank of Italy, Economic Research and International Relations Area.
- Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity; Evidence and Interpretation," IMF Working Papers 01/2, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:wun:journl:tje:v04:y2011:i3(15):a07. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Romeo Margea)
If references are entirely missing, you can add them using this form.