Assessing the sustainability of fiscal policies: Empirical evidence from the Euro Area and the United States

Luigi Landolfo
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Luigi Landolfo: University of Warwick

Journal of Applied Economics, 2008, vol. 11, 305-326

Abstract: This paper provides a formal theoretical framework for analyzing the sustainability of fiscal policy based on the government intertemporal budget constraint, and derives conditions that determine whether a fiscal stance is sustainable in the medium and long term. In contrast to previous studies, it uses a log-linearization of the public debt identity and generalizes the results obtained in the literature by using a multivariate test. The analysis is applied to the fiscal position of the United States and the Euro Area. On the basis of infinite horizon-tests the broad conclusion is that both regions have a sustainable fiscal policy.

Keywords: fiscal policy; sustainability of fiscal policy; VAR; VECM (search for similar items in EconPapers)
JEL-codes: C32 E62 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:11:y:2008:n:2:p:305-326

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