On the sustainability of government deficits: some long-term evidence for Spain, 1850-2000

Oscar Bajo-Rubio (), Carmen Diaz-Roldan and Vicente Esteve ()

No 10-03, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: We provide a test of the sustainability of the Spanish government deficit over the period 1850-2000, from the estimation of a cointegration relationship between government expenditures and revenues derived from the intertemporal budget constraint. The longer than usual span of the data allows us to obtain more robust results on the fulfilment of the intertemporal budget constraint than most of the previous analyses. Two additional robustness checks are provided. First, we investigate the possibility of structural changes occurring along the period analyzed, using the new approach of Kejriwal and Perron (2008, 2010) to testing for multiple structural changes in cointegrated regression models. Second, we investigate whether the behaviour of fiscal authorities has been non-linear, by means of the procedure of Hansen and Seo (2002) based on a threshold cointegration model. Our results show that (i) the government deficit has been strongly sustainable in the long run, (ii) no evidence is found on any significant structural break throughout the whole period, and (iii) fiscal sustainability has been attained due to the non-linear behaviour of fiscal authorities, which have only acted on the budget deficit when it has exceeded around 4.5% of GDP.

Keywords: fiscal policy; sustainability; structural change; threshold cointegration; nonlinearity (search for similar items in EconPapers)
JEL-codes: E62 H62 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2010-06
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: On the sustainability of government deficits: Some long-term evidence for Spain, 1850-2000 (2010)
Journal Article: On the Sustainability of Government Deficits: Some Long-Term Evidence for Spain, 1850–2000 (2010)
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