Are EU budget deficits sustainable?

Mark J. Holmes (), Jesus Otero () and Theodore Panagiotidis ()

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: In this paper, we test for the stationarity and sustainability of European Union budget deficits over the period 1971 to 2006, using a panel of thirteen member countries. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the identication of which members-states are stationary, and (ii) the presence of cross-sectional dependence. We employ a moving block bootstrap approach to the Hadri (2000) procedure that tests the null of joint stationarity. In contrast to the existing literature, we find that the EU countries considered are characterised by fiscal sustainability over the full sample period. This conclusion also holds when analysing sub-periods based on before and after the Maastricht treaty.

Keywords: Heterogeneous dynamic panels; fiscal sustainability; mean reversion; panel stationarity test. (search for similar items in EconPapers)
JEL-codes: C33 F32 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec and nep-pbe
Date: 2007-05, Revised 2007-05

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Persistent link: http://EconPapers.repec.org/RePEc:lbo:lbowps:2007_13

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