Public Debt Sustainability in Tunisia: Empirical Evidence Estimating Time-Varying Parameters

Samia Omrane Belguith and Foued Badr Gabsi ()
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Foued Badr Gabsi: Faculty of Economics and Management of Sfax

Journal of the Knowledge Economy, 2019, vol. 10, issue 2, No 6, 550-560

Abstract: Abstract In this paper, we use the Bohn (1998) test inspired by Fincke and Greiner (Studies in Nonlinear Dynamics & Econometrics, 15(3), 1–21, 2011b) to study whether the primary surplus relative to the gross domestic product (GDP) is a positive function of the public debt to GDP ratio in order to detect the sustainability of debt policies in Tunisia for the period 1965–2013. Using time-varying parameter model, we find that the primary balances respond positively to the debt increase showing that fiscal policy is sustainable in Tunisia. Moreover, we show that the budget deficit is stationary, which suggests that the inter-temporal budget constraint holds. Since revolution, the Tunisian government has put more weight on debt stabilization. In particular, reducing budget deficits and recovering economic growth will remain essential to maintain debt sustainability.

Keywords: Public debt; Sustainability; Fiscal reaction function; Tunisia; Time-varying parameters (search for similar items in EconPapers)
JEL-codes: E62 H62 H63 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s13132-017-0482-0

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