Budget Deficits Sustainable? An Empirical Analysis for OECD Countries

Mercan, Mehmet

doi:10.1016/j.sbspro.2014.04.114

Cited by 21 publications

(19 citation statements)

References 19 publications

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“…Empirical studies devoted to European countries reveal mixed results. While Afonso () and Mercan () show that fiscal policy may not have been sustainable, Afonso and Jalles () and Afonso and Rault () do not reject fiscal sustainability. Mixed results are reported in Caporale (), Vanhorebeek and van Rompuy (), Artis and Marcellino (), Papadopoulos and Sidiropoulos (), Uctum and Wickens (), Bravo and Silvestre (), Ahmad and Fanelli (), Ayala and Blazsek (), and Brady and Magazzino ().…”

Section: Testing For Fiscal Sustainability: a Review Of The Empiricalmentioning

confidence: 99%

Sustainability and comovement of government debt in EMU Countries: A panel data analysis

Brady¹,

Magazzino²

2018

Southern Economic Journal

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We investigate the sustainability of fiscal policy in a set of 19 European Monetary Union (EMU) countries over the period 1970–2016. Panel unit root tests in the presence of cross‐section dependence show that the government debt series is stationary, indicating that the solvency condition would be satisfied for these countries. This confirms the effectiveness of the austerity measures implemented by these member states. Moreover, an unobserved common factor drives the comovement of government debt in the Eurozone.

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Section: Testing For Fiscal Sustainability: a Review Of The Empiricalmentioning

confidence: 99%

Sustainability and comovement of government debt in EMU Countries: A panel data analysis

Brady¹,

Magazzino²

2018

Southern Economic Journal

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“…This set a new framework for the review of the role of fiscal policy, a change of its measures, and 240 the introduction of appropriate austerity measures. Merkan deals with budget deficit in 18 OECD countries (Mercan, 2014), to conclude that budget deficit in these countries is poorly sustainable and that, in 2012, it exceeded 3% of GDP. The paper points out that it is difficult to bring budget deficit in the state of sustainability, especially under unfavourable economic situation in terms of investment, low consumption, high foreign borrowing, and low private savings.…”

Section: Literature Reviewmentioning

confidence: 99%

“…What is more, fiscal policy management in these conditions becomes complex and multidimensional. For these reasons, Merkan (Mercan, 2014) points out the importance of precautions and sanctions, even though they are not welcome in society. Giray also deals with crisis period (Giray, 2015), ranking Turkey and the EU based on seven economic performance indicators before the crisis, during the crisis, and in the post-crisis period (GDP growth rate, inflation rate, public debt to GDP ratio, unemployment rate (% of GDP), exports of goods and services (% of GDP), imports of goods and services (% of GDP), net flow of foreign direct investment (% of GDP)).…”

Section: Literature Reviewmentioning

confidence: 99%

Analysis of budget deficit in the candidate countries for EU membership

Despotović¹,

Durkalić²

2017

Serb J Management

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“…Several studies have examined the sustainability of fiscal deficits in the euro area countries. These include Bravo and Silvestre (2003), Afonso (2005), Claeys (2007), Mercan (2014), Afonso and Jalles (2015), and Brady and Magazzino (2019). Bravo and Silvestre (2003) examined the intertemporal sustainability of fiscal policy in 11 European countries.…”

Section: Sustainabilitymentioning

confidence: 99%

The sustainability of Swedish fiscal policy: a re-examination

Ndoricimpa

2020

JED

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PurposeThis study reexamines the sustainability of fiscal policy in Sweden.Design/methodology/approachTo test the sustainability of fiscal policy, two approaches are used; the methodology of Kejriwal and Perron (2010), testing for multiple structural changes in a cointegrated regression model and time-varying cointegration test of Bierens and Martins (2010), and Martins (2015).FindingsUsing the first approach of testing for multiple structural changes in a cointegrated regression model, the results indicate that government spending and revenue are cointegrated with two breaks. An estimation of a two-break long-run model shows that the slope coefficient increases from 0.678 to 0.892 from the first to the second regime, implying that fiscal deficits were weakly sustainable in the first two regimes, from 1800 to 1943, and from 1944 to 1974. Further, results from time-varying cointegration test indicate that cointegration between spending and revenue in Sweden is time-varying. Fiscal deficits were found to be unsustainable for the periods 1801–1811, 1831–1838, 1853–1860 , 1872–1882, 1897–1902, 1929–1940 and 1976–1982 and weakly sustainable over the rest of the study period.Research limitations/implicationsA number of implications arise from this study: (1) Accounting for breaks in cointegration analysis and in the estimation of the level relationship between spending and revenue is very important because ignoring breaks may lead to an overestimated slope coefficient and hence a bias on the magnitude of fiscal deficit sustainability. (2) In testing for cointegration between spending and revenue, assuming a constant cointegrating slope when it is actually time-varying can also be misleading because deficits can be sustainable for a period of time and unsustainable over another period.Originality/valueThe contribution of this study is three-fold; first, the study uses a long series of annual data spanning over a period of two centuries, from 1800 to 2011. Second, because of the importance of structural change in economics, to examine the existence of a level relationship between spending and revenue, the study uses the methodology of Kejriwal and Perron (2010) to test for multiple structural changes in a cointegrated regression model, as well as time-varying cointegration of Bierens and Martins (2010) and Martins (2015).

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Budget Deficits Sustainable? An Empirical Analysis for OECD Countries

Cited by 21 publications

References 19 publications

Sustainability and comovement of government debt in EMU Countries: A panel data analysis

Sustainability and comovement of government debt in EMU Countries: A panel data analysis

Analysis of budget deficit in the candidate countries for EU membership

The sustainability of Swedish fiscal policy: a re-examination

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