Government deficit sustainability, and monetary versus fiscal dominance: The case of Spain, 1850-2000

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

No 10-04, Working Papers from Asociación Española de Economía y Finanzas Internacionales

Abstract: In this paper, we provide a test of the sustainability of the Spanish government deficit over the period 1850-2000, and examine the role played by monetary and fiscal dominance in order to get fiscal solvency. The longer than usual span of the data would allow us to obtain some more robust results on the fulfilling of the intertemporal budget constraint than in most of previous analyses. First, we analyze the relationship between primary surplus and debt, following the recent critique of Bohn (2007), and investigate the possibility of structural changes occurring along the period by means of the new approach of Kejriwal and Perron (2008). The analysis is complemented in two directions: (i) performing Granger-causality tests in order to distinguish properly between a fiscal dominant and a monetary dominant regime; and (ii) presenting the impulse-response functions of debt to innovations in the primary surplus, through the approach of Canzoneri, Cumby and Diba (2001).

Keywords: Fiscal policy; Sustainability; Fiscal Theory of the Price Level; Monetary dominance; Fiscal dominance. (search for similar items in EconPapers)
JEL-codes: E62 H62 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2010-06
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
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Related works:
Journal Article: Deficit sustainability, and monetary versus fiscal dominance: The case of Spain, 1850–2000 (2014)
Working Paper: GOVERNMENT DEFICIT SUSTAINABILITY, AND MONETARY VERSUS FISCAL DOMINANCE: THE CASE OF SPAIN, 1850-2000 (2014)
Working Paper: Government deficit sustainability, and monetary versus fiscal dominance:the case of Spain, 1850-2000 (2014)
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