Fiscal sustainability, fiscal reactions, pitfalls and determinants

Antonio Afonso and José Coelho

No 2022/0219, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We examine the sustainability of public finances and its determinants for 19 Eurozone countries from 1995 to 2020. We conclude for the existence of panel cointegration between government revenues and expenditures; primary government balance and one-period lagged public debt-to-GDP ratio; and public debt-to-GDP ratio and one-period lagged primary government balance. the estimated fiscal reaction functions suggest the existence of a Ricardian fiscal regime. Finally, modelling via time-varying coefficients, we find that fiscal sustainability increases with growth, fiscal balances and fiscal rules indices, and decreases with trade openness, current account balances, government effectiveness index, after 2010, and with sovereign ratings assigned by the main rating agencies.

Keywords: fiscal sustainability; budget balance; public debt; panel data; time-varying coefficients; Eurozone, sovereign ratings. (search for similar items in EconPapers)
JEL-codes: C23 E62 H61 H63 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-eec, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Fiscal Sustainability, Fiscal Reactions, Pitfalls and Determinants (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp02192022

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