Convergence of fiscal policies in EMU: a unit root test with structural break

Francisco Serranito and Christophe Blot ()

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Abstract: The aim of this study is first to determine whether the fiscal policy amongEMU countries have converged and then to identify the source of theconvergence process. The convergence of fiscal policies was at the coreof the fiscal criteria imposed by the Maastricht treaty but it may alsohave resulted from the economic and financial integration that precededthe Treaty. Some unit-root tests are implemented on the cross-countryvariance for various fiscal policy indicators where a break in the interceptand the trend is allowed to catch whether the convergence is due to institutionalarrangements or to economic integration. We conclude that thefiscal position has converged but the break date, selected before 1992,indicates that the convergence process preceded the Maastricht treaty.Considering the fiscal receipts, the hypothesis of convergence is acceptedonly when they are adjusted from the cyclical component. The convergenceof fiscal expenditures is finally clearly rejected.

Keywords: Convergence; fiscal policies; unit root tests with break; EMU (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (9)

Published in Applied Economics Letters, 2006, 13, pp.211-216

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00174163

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