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On the sustainability of government deficits: some long-term evidence for Spain, 1850-2000


  • Oscar Bajo-Rubio

    (Universidad de Castilla-La Mancha)

  • Carmen Díaz-Roldán

    (Universidad de Castilla-La Mancha)

  • Vicente Esteve

    (Universidad de Valencia y Universidad de La Laguna)


We provide a test of the sustainability of the Spanish government deficit over the period 1850-2000, from the estimation of a cointegration relationship between government expenditures and revenues derived from the intertemporal budget constraint. The longer than usual span of the data allows us to obtain more robust results on the fulfilment of the intertemporal budget constraint than most of the previous analyses. Two additional robustness checks are provided. First, we investigate the possibility of structural changes occurring along the period analyzed, using the new approach of Kejriwal and Perron (2008, 2010) to testing for multiple structural changes in cointegrated regression models. Second, we investigate whether the behaviour of fiscal authorities has been non-linear, by means of the procedure of Hansen and Seo (2002) based on a threshold cointegration model. Our results show that (i) the government deficit has been strongly sustainable in the long run, (ii) no evidence is found on any significant structural break throughout the whole period, and (iii) fiscal sustainability has been attained due to the non-linear behaviour of fiscal authorities, which have only acted on the budget deficit when it has exceeded around 4.5% of GDP.

Suggested Citation

  • Oscar Bajo-Rubio & Carmen Díaz-Roldán & Vicente Esteve, 2010. "On the sustainability of government deficits: some long-term evidence for Spain, 1850-2000," Working Papers 10-03, Asociación Española de Economía y Finanzas Internacionales.
  • Handle: RePEc:aee:wpaper:1003

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    Cited by:

    1. Bajo-Rubio, Oscar & Díaz-Roldán, Carmen & Esteve, Vicente, 2014. "Deficit sustainability, and monetary versus fiscal dominance: The case of Spain, 1850–2000," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 924-937.
    2. Bajo-Rubio, Oscar, 2012. "The balance-of-payments constraint on economic growth in a long-term perspective: Spain, 1850–2000," Explorations in Economic History, Elsevier, vol. 49(1), pages 105-117.
    3. Chen, Shyh-Wei, 2014. "Testing for fiscal sustainability: New evidence from the G-7 and some European countries," Economic Modelling, Elsevier, vol. 37(C), pages 1-15.
    4. Yoon, Gawon, 2012. "Explosive U.S. budget deficit," Economic Modelling, Elsevier, vol. 29(4), pages 1076-1080.
    5. N. Bilkic & B. Carreras Painter & T. Gries, 2013. "Unsustainable sovereign debt—is the Euro crisis only the tip of the iceberg?," International Economics and Economic Policy, Springer, vol. 10(1), pages 1-45, March.
    6. Nimai Das, 2015. "Subnational level fiscal health in India: stability and sustainability implications," Economic Change and Restructuring, Springer, vol. 48(1), pages 71-91, February.
    7. Trachanas, Emmanouil & Katrakilidis, Constantinos, 2013. "Fiscal deficits under financial pressure and insolvency: Evidence for Italy, Greece and Spain," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 730-749.

    More about this item


    fiscal policy; sustainability; structural change; threshold cointegration; nonlinearity;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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