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Public debt, the unit root hypothesis and structural breaks: a multi-country analysis

  • Merih Uctum

    (Brooklyn College - City University of New York, Graduate Center - City University of New York)

  • Thom Thurston

    (Graduate Center - City University of New York, Queen's College - City University of New York)

  • Remzi Uctum

    (EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre)

We assess fiscal performances in G7 and selected Latin American and Asian countries. We analyze two questions: (i) have public finances been sustainable? (ii) do countries follow more restrictive fiscal policies when debt starts to rise? We find that: (i) The traditional unit root tests often overlook the corrective actions taken by many governments. Controlling for structural breaks changes the nonstationarity results dramatically among the three groups; (ii) Estimation of a reaction function for governments, expanded by incorporating structural breaks, provides further evidence for significant active anti-debt policies among the G7 and to a lesser extent in the other regions.

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Paper provided by HAL in its series Post-Print with number halshs-00081527.

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Date of creation: 2006
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Publication status: Published, Economica, 2006, 73, 289, 129-156
Handle: RePEc:hal:journl:halshs-00081527
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00081527/en/
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  11. Kremers, Jeroen J. M., 1989. "U.S. Federal indebtedness and the conduct of fiscal policy," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 219-238, March.
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