Does Wagner's law ruin the sustainability of German public finances?
The empirical and theoretical literature on long-term relationships in public finance is dominated by two approaches: Fiscal sustainability and Wagner's law of an increasing state activity. In this paper, we argue that these two relationships should be analyzed simultaneously and not separately. We show how Wagner's law might influence fiscal sustainability and how the interaction of the two can be modelled using vector error correction models that include public expenditures, revenues and GDP. For Germany, we find strong evidence for Wagner's law throughout the whole period analyzed (1960-2007), while our results indicate sustainability of public finances only until 1973. We show that, for the period after 1973, it is the interaction of permanent expenditure increases and revenue reductions resulting from fiscal policy reactions to the oil crisis and Wagner's law that ruins the sustainability of public finances in Germany. Our findings underline the importance of the German debt brake for re-establishing sustainable public finances even under Wagner's law.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Web page: http://www.bundesbank.de/
More information through EDIRC
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.:
- Annastiina Silvennoinen & Timo Teräsvirta, 2008.
"Multivariate GARCH models,"
CREATES Research Papers
2008-06, School of Economics and Management, University of Aarhus.
- Silvennoinen, Annastiina & Teräsvirta, Timo, 2007. "Multivariate GARCH models," SSE/EFI Working Paper Series in Economics and Finance 669, Stockholm School of Economics, revised 18 Jan 2008.
- Koop, Gary & Korobilis, Dimitris, 2009.
"Bayesian Multivariate Time Series Methods for Empirical Macroeconomics,"
20125, University Library of Munich, Germany.
- Koop, Gary & Korobilis, Dimitris, 2010. "Bayesian Multivariate Time Series Methods for Empirical Macroeconomics," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(4), pages 267-358, July.
- Gary Koop & Dimitris Korobilis, 2009. "Bayesian Multivariate Time Series Methods for Empirical Macroeconomics," Working Paper Series 47_09, The Rimini Centre for Economic Analysis, revised Jan 2009.
- Bent Nielsen & Soren Johansen and Rocco Mosconi, 2000.
"Cointegration analysis in the presence of structural breaks in the deterministic trend,"
Economics Series Working Papers
2000-W22, University of Oxford, Department of Economics.
- Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
- Bent Nielsen, 2000. "Cointegration Analysis in the Presence of Structural Breaks in the Deterministic Trend," Econometric Society World Congress 2000 Contributed Papers 1494, Econometric Society.
- Gabriella Legrenzi & Costas Milas, 2002. "A Multivariate Approach to the Growth of Governments," Public Finance Review, , vol. 30(1), pages 56-76, January.
- Fève, Patrick & Hénin, Pierre-Yves, 1998.
"Assessing effective sustainability of fiscal policy within the G-7,"
CEPREMAP Working Papers (Couverture Orange)
- Feve, Patrick & Henin, Pierre-Yves, 2000. " Assessing Effective Sustainability of Fiscal Policy within the G-7," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 175-95, May.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990.
"Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?,"
8905, Michigan State - Econometrics and Economic Theory.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
- Cerrato, Mario & Kim, Hyunsok & MacDonald, Ronald, 2010.
"Nominal Interest Rates and Stationarity,"
SIRE Discussion Papers
2010-43, Scottish Institute for Research in Economics (SIRE).
- Uctum, Merih & Wickens, Michael R., 1997.
"Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis,"
CEPR Discussion Papers
1612, C.E.P.R. Discussion Papers.
- Uctum, Merih & Wickens, Michael, 2000. " Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 197-222, May.
- Merih Uctum & Michael Wickens, 1996. "Debt and deficit ceilings, and sustainability of fiscal policies: an intertemporal analysis," Research Paper 9615, Federal Reserve Bank of New York.
- Antonio Afonso, 2004.
"Fiscal Sustainability: the Unpleasant European Case,"
Money Macro and Finance (MMF) Research Group Conference 2004
57, Money Macro and Finance Research Group.
- António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
- Garcia, Sophie & Henin, Pierre-Yves, 1999.
"Balancing budget through tax increases or expenditure cuts: is it neutral?,"
Elsevier, vol. 16(4), pages 591-612, December.
- Hénin, Pierre-Yves & Garcia, Sophie, 1996. "Balancing budget through tax increases or expenditures cuts : is it neutral ?," CEPREMAP Working Papers (Couverture Orange) 9604, CEPREMAP.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
- Massimo Florio & Sara Colautti, 2005. "A logistic growth theory of public expenditures: A study of five countries over 100 years," Public Choice, Springer, vol. 122(3), pages 355-393, March.
- Lori Leachman & Alan Bester & Guillermo Rosas & Peter Lange, 2005. "Multicointegration and Sustainability of Fiscal Practices," Economic Inquiry, Western Economic Association International, vol. 43(2), pages 454-466, April.
- Payne, James E & Ewing, Bradley T, 1996. "International Evidence on Wagner's Hypothesis: A Cointegration Analysis," Public Finance = Finances publiques, , vol. 51(2), pages 258-74.
- Bravo, Ana Bela Santos & Silvestre, Antonio Luis, 2002. "Intertemporal sustainability of fiscal policies: some tests for European countries," European Journal of Political Economy, Elsevier, vol. 18(3), pages 517-528, September.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, March.
- Yesim Gurbuz & Thomas Jobert & Ruhi Tuncer, 2007. "Public debt in Turkey: evaluation and perspectives," Applied Economics, Taylor & Francis Journals, vol. 39(3), pages 343-359.
When requesting a correction, please mention this item's handle: RePEc:zbw:bubdps:082012. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.