What do we really know about fiscal sustainability in the EU? A panel data diagnostic (original) (raw)

What do we really know about fiscal sustainability in the EU? A panel data diagonostic

2007

We assess the sustainability of public finances in the EU15 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (1999, 2004), generalized by Banerjee and Carrion-i-Silvestre (2006) and Westerlund and Edgerton (2007), to a structural long-run equation between general government expenditures and revenues. While sustainability may be lacking in individual cases, fiscal policy was overall sustainable both for the EU15 panel set, and within some sub-periods.

Fiscal Sustainability in the EU: A Panel Data Diagnostic

SSRN Electronic Journal, 2000

ABSTRACT We assess the sustainability of public finances in the EU15 over the period 1970-2006 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (1999, 2004), generalized by Banerjee and Carrion-i-Silvestre (2006) and Westerlund and Edgerton (2007), to a structural long-run equation between general government expenditures and revenues. While estimations point to fiscal sustainability being an issue in some countries, fiscal policy was sustainable both for the EU15 panel set, and within sub-periods (1970-1991 and 1992-2006).

Sustainability of EU fiscal policies: a panel test

Journal of Economic Integration, 2007

The fiscal policy rule implicit in the Stability and Growth Pact, has been rationalised as a way to ensure that national fiscal policies remain sustainable within the EU, thereby endorsing the independence of the ECB. We empirically examine the sustainability of European fiscal policies over the period 1970-2001. The intertemporal government budget constraint provides a test based on the cointegration relation between government revenues, expenditures and interest payments. Sustainability is analysed at both the national level and for a European panel. Results show that European fiscal policy has been sustainable overall, yet national experiences differ considerably.

The sustainability of fiscal policies in the European Union

International Advances in Economic Research, 1999

In this paper the stationarity of the inclusive of interest public deficit is examined for the case of five European Union economies, four of them being recently selected for Euro entry. Unit Roots tests which in addition allow the examination structural breaks and cointegration analysis which also investigates the case for regime shifts, support the occurrence of sustainable deficits for the Greek, Spanish and Portuguese economy. On the contrary Italy and Belgium may incur with unsustainable deficits implying therefore their selection in phase 2 of EMU questionable.

Fiscal Sustainability in the EU

Atlantic Economic Journal, 2018

We assessed the sustainability of fiscal policy in the 28 European Union countries over the 1980-2015 years. Panel unit root tests in the presence of cross-sectional dependence showed that government revenues, expenditures, the primary balance, and debt were non-stationary series. However, cointegration tests reveled that a long-run relationship exists between government revenues and expenditures as well as between government primary deficit and debt. The results of causality tests were in line with the neutrality hypothesis: government revenues do not cause the expenditures, and vice versa. Furthermore, mixture models analyses indicated the presence of three homogeneous clusters, one of which included Portugal, Ireland, Italy, Greece, and Spain (PIIGS), whose coefficient of 0.68 indicates the absence of sustainability, since government expenditures grow faster than revenues.

Intertemporal sustainability of fiscal policies: some tests for European countries

European Journal of Political Economy, 2002

Fiscal sustainability requires that governments are able to respect the intertemporal budget constraint (IBC) in present value terms. In this paper, we test for sustainability by performing an empirical analysis of cointegration between public expenditures and revenues as ratios of GDP in 11 member states of the European Union during the period 1960 -2000. If cointegration of expenditures and revenues as ratios of GDP is a sufficient condition for sustainability, our results point to the possibility of sustainable budgetary paths in

Revisiting Fiscal Sustainability: Panel Cointegration and Structural Breaks in OECD Countries

SSRN Electronic Journal, 2000

We assess the sustainability of public finances in OECD countries, over the period 1970-2010, using unit root and cointegration analysis, both country and panel based, controlling for endogenous breaks. Results notably show: lack of cointegration -absence of sustainabilitybetween government revenues and expenditures for most countries (except

3-Step Analysis of Public Finances Sustainability: The Case of the European Union

2008

We use a 3-step analysis to assess the sustainability of public finances in the EU27. Firstly, we perform the SURADF specific panel unit root test to investigate the meanreverting behaviour of general government expenditure and revenue ratios. Secondly, we apply the bootstrap panel cointegration techniques that account for the time series and cross-sectional dependencies of the regression error. Thirdly, we check for a structural long-run equation between general government expenditures and revenues via SUR analysis. While results imply that public finances were not unsustainable for the EU panel, fiscal sustainability is an issue in most countries, with a below unit estimated coefficient of expenditure in the cointegration relation with revenue as the dependent variable. JEL Classification: C23, E62, H62