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Public debt, the unit root hypothesis and structural breaks: a multi-country analysis

Merih Uctum (), Thom Thurston and Remzi Uctum ()

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Abstract: We assess fiscal performances in G7 and selected Latin American and Asian countries. We analyze two questions: (i) have public finances been sustainable? (ii) do countries follow more restrictive fiscal policies when debt starts to rise? We find that: (i) The traditional unit root tests often overlook the corrective actions taken by many governments. Controlling for structural breaks changes the nonstationarity results dramatically among the three groups; (ii) Estimation of a reaction function for governments, expanded by incorporating structural breaks, provides further evidence for significant active anti-debt policies among the G7 and to a lesser extent in the other regions.

Keywords: fiscal policy; sustainability; government reaction function; structural breaks (search for similar items in EconPapers)
Date: 2006
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Published in Economica, Wiley, 2006, 73 (289), pp.129-156

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Journal Article: Public Debt, the Unit Root Hypothesis and Structural Breaks: A Multi‐Country Analysis (2006) Downloads
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