Euro Area Time Varying Fiscal Sustainability

Antonio Afonso and Joao Jalles

No 2015/13, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: We assess the time varying features of fiscal sustainability in the euro area via revisiting the empirical relationship between the primary budget surplus and the debt-to-GDP ratio. Focusing on a sample of 11 Euro-area countries between 1999Q1 and 2013Q4 and by means of time series analyses, we find that: i) fiscal policy seems to have been sustainable in Belgium, France, Germany and Netherlands and a Ricardian (monetary dominant) regime might have been present; ii) debt exhibited a negative response following an innovation in the budget surplus in half of the sample; iii) the time-varying coefficient model shows that the 2008-2009 global economic and financial crisis exerted a sizeable negative impact on fiscal sustainability; iv) expenditure-based fiscal rules are strong determinants of fiscal sustainability. All in all, we found some evidence against the Fiscal Theory of the Price Level.

Keywords: fiscal sustainability; causality; impulse response functions; time-varying coefficients; fiscal rules; logistic model (search for similar items in EconPapers)
JEL-codes: E62 H62 O52 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Euro area time‐varying fiscal sustainability (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ise:isegwp:wp132015

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