Economics at your fingertips  

Measuring fiscal sustainability in the welfare state: fiscal space as fiscal sustainability

Hyejin Ko ()
Additional contact information
Hyejin Ko: Korea Institute for Health and Social Affairs

International Economics and Economic Policy, 2020, vol. 17, issue 2, No 8, 554 pages

Abstract: Abstract This study measures the fiscal capacity of welfare states to derive parameters for a sustainable welfare state. To secure fiscal soundness, it is critical to maintain affordable welfare spending by ensuring public capacity. Adapting the concept of fiscal space, defined as the difference between the current level of public debt and the debt limit implied by the country’s historical record of fiscal adjustment by Ostry et al. (2010) and Ghosh et al. (2011), this research measures and compares the fiscal sustainability of 17 welfare states. To derive this fiscal space, the debt limit of each country is set, primarily based on the estimating of fiscal reaction function and selecting interest schedule (Ghosh et al. 2011, p. F13). We use a pooled-time-series-cross-sectional model to estimate fiscal reaction function and the vector regression model to set the interest schedule. It is found that Southern European welfare states are unsustainable if they do no immediately change their fiscal policies. Countries outside of Southern Europe are generally financially sustainable. However, the UK, the US, and France have in their recent actions exacerbated their financial sustainability. For their part, the social democratic states remain financially sound, despite high levels of welfare spending. This indicates that welfare spending does not necessarily weaken fiscal soundness, which depends on the type of welfare state.

Keywords: Sustainability; Public finance; Fiscal space; Welfare state (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10368/PS2

DOI: 10.1007/s10368-019-00453-2

Access Statistics for this article

International Economics and Economic Policy is currently edited by Paul J.J. Welfens, Holger C. Wolf, Christian Pierdzioch and Christian Richter

More articles in International Economics and Economic Policy from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2022-05-12
Handle: RePEc:kap:iecepo:v:17:y:2020:i:2:d:10.1007_s10368-019-00453-2