Fiscal Policy Sustainability, Economic Cycle and Financial Crises: The Case of the GIPS

Gabriella Legrenzi () and Costas Milas

No 4001, CESifo Working Paper Series from CESifo

Abstract: We extend previous work on the sustainability of the government’s intertemporal budget constraint by allowing for non-linear adjustment of the fiscal variables, conditional on (i) the sign of budgetary disequilibria and (ii) the phase of the economic cycle. Further, our endogenously estimated threshold for the non-linear adjustment is not fixed; instead it is allowed to vary over time and during financial crises. Our analysis presents particular interest within the current economic scenario of financial crises, poor growth and debt crises. Our empirical analysis, applied to the GIPS, shows evidence of a threshold behaviour for the GIPS, that only correct “large” unbalances, which, in the case of Greece and Portugal, are higher than the EGSP criteria. Financial crises further relax the threshold for adjustment: during financial crises, only “very large” budgetary unbalances are corrected.

Keywords: debt sustainability; fiscal adjustment; nonlinear models (search for similar items in EconPapers)
JEL-codes: C22 H20 H60 H63 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp4001.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Unavailable

Related works:
Working Paper: Fiscal Policy Sustainability, Economic Cycle and Financial Crises: The Case of the GIPS (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4001

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().