Is the Budget Deficit Sustainable when Fiscal Policy is nonlinear? The Case of Spain, 1961-2001

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

No E2003/32, Economic Working Papers at Centro de Estudios Andaluces from Centro de Estudios Andaluces

Abstract: In this paper we re-examine the long-run sustainability of budget deficits, when fiscal policy is conducted as a nonlinear process. Our empirical methodology makes use of recent developments on threshold cointegration that consider the possibility of a nonlinear relationship between government revenues and expenditures. The analysis is applied to the case of Spain, a country that has recently accomplished an important fiscal consolidation. Overall, our results suggest the presence of significant nonlinear effects in Spanish fiscal policy, so that fiscal authorities would cut deficits only if they are “large”, and assuring their long-run sustainability.

Keywords: Fiscal policy; Sustainability; Threshold cointegration. (search for similar items in EconPapers)
JEL-codes: E62 H62 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2003
New Economics Papers: this item is included in nep-eec and nep-pbe
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Journal Article: Is the budget deficit sustainable when fiscal policy is non-linear? The case of Spain (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cea:doctra:e2003_32

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