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“The relationship between debt level and fiscal sustainability in OECD countries”

  • Mariam Camarero

    ()

    (Jaume I University)

  • Josep Lluís Carrion-i-Silvestre

    ()

    (Faculty of Economics, University of Barcelona)

  • Cecilio Tamarit

    ()

    (University of Valencia)

In this paper we unify the traditional approaches to testing for fiscal sustainability considering the stock-flow system that fiscal variables configure. Our approach encompasses previous ways of testing for sustainability. The results obtained for a group of 17 OECD countries point to weak fiscal sustainability, as well as to the existence of cointegration between deficit and debt, confirming the relevance of the stock-flow approach. Allowing for structural breaks and multicointegration turns out to be of critical importance to assess whether the fiscal authorities apply their policies looking for sustainability and whether, simultaneously, they try to stabilize real debt target levels..

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File URL: http://www.ub.edu/irea/working_papers/2013/201315.pdf
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Paper provided by University of Barcelona, Regional Quantitative Analysis Group in its series AQR Working Papers with number 201307.

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Length: 55 pages
Date of creation: Sep 2013
Date of revision: Sep 2013
Handle: RePEc:aqr:wpaper:201307
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  1. Vanessa Berenguer‐Rico & Josep Lluís Carrion‐i‐Silvestre, 2011. "Regime shifts in stock–flow I(2)–I(1) systems: the case of US fiscal sustainability," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(2), pages 298-321, March.
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  16. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
  17. Josep Lluís Carrion-i-Silvestre & Andreu Sansó, 2006. "Testing the Null of Cointegration with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 623-646, October.
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  20. Afonso, António & Sousa, Ricardo M., 2011. "What are the effects of fiscal policy on asset markets?," Economic Modelling, Elsevier, vol. 28(4), pages 1871-1890, July.
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