Fiscal Sustainability of the European Welfare State: Evidence from Cumulative Excess of the Primary Balance

Andreea Stoian

No 27/2012, Working Papers from Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE)

Abstract: Tanzi and Schuknecht (1997) pointed out that one of the key features of welfare state is to run large fiscal deficits and public debt. This can be explained considering the rise of the social transfers that led to an overall increase of the total government spending. Growing public debt can generate fiscal sustainability issues in the long run. Therefore, the aim of this paper is to study fiscal sustainability using an indicator named the Cumulative Excess of the Primary Balance (CEPB) that avoids the shortcomings induced by non-stationary time series or Structural breaks when applying classical econometric tools. CEPB is derived from a simple Dynamic model of public debt that allows estimating the primary balance that stabilizes public debt. Applying CEPB for annual data extracted for 1980-2007 period for two distinct European welfare regimes, we find that the Nordic welfare states are less exposed to fiscal Sustainability issues in the long run than the Conservative countries.

Keywords: Fiscal sustainability; budgetary deficit; primary balance; public debt; welfare state (search for similar items in EconPapers)
JEL-codes: E62 H62 H63 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2012-06-12
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (1)

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