Assessing Fiscal-Policy Sustainability: On the Different States of the Debt-to-GDP Process

Abstract

This paper assesses fiscal-policy sustainability. A sufficient condition for this is that public debt is on a stationary trajectory. This is tested by means of a very general Markovswitching augmented Dickey-Fuller (MS-ADF) model, which expands and improves simpler existing models of this type, and produces more reliable results than conventional state-invariant unit-root tests. Long data series (in some cases with more than 200 observations) on the debt-to-GDP ratio are analyzed for 16 countries. Empirical results indicate that Finland, Norway, Sweden, Switzerland, and the UK have sustainable fiscal policies. Greece and Japan have unsustainable fiscal policies, which could lead to debt default unless appropriate measures are taken. The remaining countries are characterized as having uncertain debt policies, which governments could take as a warning to try to better balance their budgets. The results are found to be robust to variations in the specific time period investigated and the number of states used.

Are Unconventional Monetary Policy and Large Scale Fiscal Policy Effective?: The Case of Japan

“…Miyazaka and Yamada (2015) showed that relative to the achievement the government target of fiscal consolidation by 2020, the Japanese government's condition is serious. Velinov (2015) indicated that Finland, Norway, Sweden, Switzerland, and the United Kingdom have sustainable fiscal policies; Greece and Japan do not. Ko and Morita (2015) found that fiscal policy caused more effective consumption in era of high rule-of-thumb households.…”

Public policy and developmental imperatives: theorising governance in the case of social grants in Endumeni Local Municipality, KwaZulu-Natal

“…Statistics South Africa (Stats SA) (2020) reported that the government's spending on Gross Domestic Product (GDP) keeps on increasing from 19,8 percent in 1994 to 36 percent in 2020. The increase in government spending results from various factors, for example, population growth (Velinov, 2015;SASSA, 2020). In 2020, the population in South Africa was over 60 million people, it was estimated to grow to 90 million by 2030 and the government's expenditure on social grants was to grow as well (Hall & Sambo, 2016;Worldometer, 2020).…”

“…The South African government funds social grants through the tax system, as it taxes persons and businesses using the progressive tax system, which is an excessive tax on high-income earners (Velinov, 2015;Garidzirai & Chikuruwo, 2021). This tax system allows the state to accumulate income given to poor individuals to address the income inequality in the country (Huang, 2008).…”