Euro area time-varying fiscal sustainability

António Afonso, João Tovar Jalles

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)

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 (a) fiscal policy seems to have been sustainable in Belgium, France, Germany, and the Netherlands and a Ricardian (monetary dominant) regime might have been present; (b) debt exhibited a negative response following an innovation in the budget surplus in half of the sample; (c) the time-varying coefficient model shows that the 2008–2009 global economic and financial crisis exerted a sizeable negative impact on fiscal sustainability; and (d) 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.

Original languageEnglish
Pages (from-to)244-254
Number of pages11
JournalInternational Journal of Finance & Economics
Volume22
Issue number3
DOIs
Publication statusPublished - 1 Jul 2017

Keywords

  • causality
  • fiscal rules
  • fiscal sustainability
  • impulse response functions
  • logistic model
  • time-varying coefficients

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