Multi-step analysis of public finances sustainability

Antonio Afonso and Christophe Rault

Economic Modelling, 2015, vol. 48, issue C, 199-209

Abstract: We use an original multi-step analysis to assess the sustainability of public finances. Firstly, we investigate the mean-reverting behaviour of government expenditures and revenues. Secondly, we apply bootstrap panel cointegration techniques to check for a long-run relationship between expenditures and revenues. Thirdly, we check the coefficient of expenditure in the cointegration relation. Fourthly, we estimate panel error correction models to identify short-run and long-run fiscal developments. While the results imply that public finances were not unsustainable for the EU panel, they highlight that fiscal sustainability is an issue for most countries, as evidenced by a below unit estimated coefficient of expenditure in the cointegration relation.

Keywords: Fiscal sustainability; EU; Panel cointegration (search for similar items in EconPapers)
JEL-codes: C23 E62 H62 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:48:y:2015:i:c:p:199-209

DOI: 10.1016/j.econmod.2014.10.011

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