Fiscal deficits under financial pressure and insolvency: Evidence for Italy, Greece and Spain

Emmanouil Trachanas and Constantinos Katrakilidis

Journal of Policy Modeling, 2013, vol. 35, issue 5, 730-749

Abstract: This article attempts to re-evaluate the sustainability of the fiscal deficit as well as the long-run macroeconomic relationship between government spending and revenues for three South-European economies under financial market pressure and insolvency; Italy, Greece and Spain. The empirical analysis uses annual data from 1970 to 2010 and employs various cointegration techniques to account for possible linear and nonlinear effects in fiscal policy actions. The evidence for all three countries suggests that, allowing for structural break, (i) the fiscal deficits are weakly sustainable in the long-run, (ii) the spend-and-tax hypothesis is supported and (iii) the budgetary adjustment process is asymmetric in Italy and Spain.

Keywords: Fiscal policy; Budget deficit; Sustainability; Revenues; Expenditures; Structural breaks; Threshold cointegration (search for similar items in EconPapers)
JEL-codes: C22 E62 H61 H62 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:35:y:2013:i:5:p:730-749

DOI: 10.1016/j.jpolmod.2013.03.013

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