Assessing the Sustainability of Fiscal Policies: Empirical Evidence from the Euro Area and the United States

Luigi Landolfo

Journal of Applied Economics, 2008, vol. 11, issue 2, 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.

Date: 2008
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DOI: 10.1080/15140326.2008.12040509

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