3-step analysis of public finances sustainability - the case of the European Union

Antonio Afonso () and Christophe Rault ()
Additional contact information
Christophe Rault: Université d’Orléans, LEO, CNRS, UMR 6221, Rue de Blois-B.P.6739, 45067 Orléans Cedex 2, France; IZA, Germany; and William Davidson Institute at the University of Michigan, Ann Arbor, Michigan, 48109, USA., http://www.univ-orleans.fr/staps/

No 908, Working Paper Series from European Central Bank

Abstract: We use a 3-step analysis to assess the sustainability of public finances in the EU27. Firstly, we perform the SURADF specific panel unit root test to investigate the meanreverting behaviour of general government expenditure and revenue ratios. Secondly, we apply the bootstrap panel cointegration techniques that account for the time series and cross-sectional dependencies of the regression error. Thirdly, we check for a structural long-run equation between general government expenditures and revenues via SUR analysis. While results imply that public finances were not unsustainable for the EU panel, fiscal sustainability is an issue in most countries, with a below unit estimated coefficient of expenditure in the cointegration relation with revenue as the dependent variable. JEL Classification: C23, E62, H62.

Keywords: Fiscal sustainability; EU; panel cointegration. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2008-06

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Related works:
Working Paper: 3-Step Analysis of Public Finances Sustainability: the Case of the European Union (2008)
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