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A "litmus test" of Deficit Sustainability: The Case of the Greek Budget Deficit

Dimitris Hatzinikolaou ()

Review of Economics & Finance, 2016, vol. 6, 65-73

Abstract: The paper applies three sustainability tests to the Greek budget deficit, which is known to be unsustainable, and can therefore be used to check the reliability of the three tests. Using three deficit definitions, i.e., in levels, in per capita terms, and in percent of GDP, I find the following results: (1) the unit-root test rejects sustainability only for the last definition; (2) the Hakkio-Rush test does not reject sustainability for any definition; and (3) the Hatzinikolaou-Simos test, which is applicable only for the first two definitions, strongly rejects sustainability, and so it proves to be more reliable, as expected.

Keywords: Budget deficit; Sustainability tests; Greece (search for similar items in EconPapers)
JEL-codes: C15 E62 H62 H63 (search for similar items in EconPapers)
Date: 2016
Note: The author is grateful to two anonymous referees of this Journal for their useful comments and suggestions, which improved this paper significantly. Of course, the usual disclaimer applies.
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