Drivers of fiscal sustainability: A time-varying analysis for Portugal

Antonio Afonso and José Coelho

International Economics, 2024, vol. 178, issue C

Abstract: We assess the drivers of fiscal sustainability in Portugal during the period 1999Q4-2021Q4. We resort to expanding window and Schlicht (2003, 2021)'s time-varying approaches to construct the responses of government revenues to government expenditures and the responses of the primary government balance and the cyclically adjusted primary government balance (CAPB) to the debt-to-GDP ratio. Our results show the prevalence of a Ricardian fiscal regime in Portugal. If the differential between the implicit interest rate of the nominal stock of public debt and the nominal growth rate of GDP is positive, the positive response of the primary government balance to the debt-to-GDP ratio is amplified. An improvement in the external accounts, the increase in the European Commission's fiscal rules index and the extension of the debt maturity were beneficial for fiscal sustainability. Sovereign debt rating downgrades implied a posterior fiscal reaction that improves fiscal sustainability. Moreover, fiscal sustainability increased during the implementation of the international financial assistance program to Portugal, between 2011Q2 and 2014Q2.

Keywords: Fiscal sustainability; Primary government balance; Government debt; Expanding window; Time-varying; Portugal (search for similar items in EconPapers)
JEL-codes: C23 E62 H61 H63 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Drivers of Fiscal Sustainability: A Time-Varying Analysis for Portugal (2023)
Working Paper: Drivers of Fiscal Sustainability: a Time-Varying Analysis for Portugal (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:178:y:2024:i:c:s211070172400009x

DOI: 10.1016/j.inteco.2024.100486

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