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Modelling the Fiscal Reaction Functions of the GIPS Based on State-Varying Thresholds

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  • Gabriella Deborah Legrenzi
  • Costas Milas

Abstract

We extend previous literature on fiscal policy sustainability by introducing non-linear fiscal reaction functions with endogenously estimated state-varying thresholds to capture the behaviour of fiscal policy authorities during “good” and “bad” times. These thresholds vary with the level of debt, the economic cycle and an index of financial pressure.

Suggested Citation

  • Gabriella Deborah Legrenzi & Costas Milas, 2013. "Modelling the Fiscal Reaction Functions of the GIPS Based on State-Varying Thresholds," CESifo Working Paper Series 4385, CESifo.
    • Handle: RePEc:ces:ceswps:_4385
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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