Old wine in a new bottle: public debt sustainability - evidence from a number of EU countries under fiscal consolidation
DOI:
https://doi.org/10.17811/ebl.4.4.2015.131-136Abstract
This paper re-investigates the issue of public debt sustainability in the case of five European Union (EU) countries either under bailout programmes or adopting fiscal consolidation measures spanning the period 1980-2014. The empirical analysis makes use of the methodology of nonlinear unit root testing and the results provide robust evidence in favour of public debt sustainability for four countries, excluding Greece. These robust finding suggest that the current austerity programme adopted by the Greek economy triggers upward debt spirals contributing to its unsustainability and, therefore, growth oriented policies should be the primary ingredient of a different programme for the country to fiscally and economically survive.
References
Ahmed, S. and Roger, J.H. (1995) Government budget deficits and trade deficits: are present value constraints satisfied in long-term data?, International Finance Section Discussion Paper, No. 494, Washington, D.C.: Federal Reserve Board.
Papadopoulos, A. and Sidiropoulos, M. (1999) The sustainability of fiscal policies in the European Union, International Advances in Economic Research, 5, 289-307.
Baglioni, A. and Cherubini, U. (1993) Intertemporal budget constraint and public debt sustainability: The case of Italy, Applied Economics, 25, 275-283.
Bohn, H. (2005) The sustainability of fiscal policy in the United States, Working Paper Series No. 1446. Center for Economic Studies and Ifo Institute.
Caporale, G. (1995) Bubble finance and debt sustainability: A test of the government’s intertemporal budget constraint, Applied Economics, 27, 1135-1143.
Dadush, U., Aleksashenko, S., Ali, S., Eidelman, V., Naím, S.B. and Subacchi, P. (2010) Paradigm Lost – The Euro in Crisis, Carnegie Endowment for International Peace.
Hamilton, J.D. and Flavin, M. (1986) On the limitations of government borrowing: A framework for empirical testing, American Economic Review, 76, 808-819.
Lee, J. and Strazicich, M.C. (2003) Minimum Lagrange multiplier unit root test with two structural breaks, Review of Economics and Statistics, 85, 1082–1089.
Narayan, P.K. and Liu, R. (2013) New evidence on the weak-form efficient market hypothesis, Working Paper, Centre for Financial Econometrics, Deakin University.
Narayan, P.K. and Popp, S. (2010) A new unit root test with two structural breaks in level and slope at unknown time, Journal of Applied Statistics, 37, 1425-1438.
Neaime, S. (2015) Sustainability of budget deficits and public debts in selected European Union countries, The Journal of Economic Asymmetries, 12, 1-21.
Neaime, S. (2012) The global financial crisis and the euro Mediterranean partnership. In Europe and the Mediterranean economy, U.K.: London School of Economics and Routledge Press.
Payne, J. (1997) International evidence on the sustainability of budget deficits, Applied Economics Letters, 4, 775-779.
Reinhart, C. and Rogoff, K. (2009a) The aftermath of financial crisis, American Economic Review, 99, 466-472.
Reinhart, C. and Rogoff, K. (2009b) This Time is Different – Eight Centuries of Financial Folly, Princeton University Press, Princeton.
Smith, G.W. and Zin, S.E. (1991) Persistent deficits and the market value of government debts, Journal of Applied Econometrics, 6, 31-44.
Trehan, B. and Walsh, C.E. (1991) Testing intertemporal budget constraints: Theory and applications to U.S. federal budget and current account deficits, Journal of Money, Credit, and Banking, 23, 206-223.
Downloads
Published
How to Cite
Issue
Section
License
The works published in this journal are subject to the following terms:
1. Oviedo University Press (the publisher) retains the property rights (copyright) of published works, and encourages and enables the reuse of the same under the license specified in paragraph 2.
© Ediuno. Ediciones de la Universidad de Oviedo / Oviedo University Press
2. The works are published in the online edition of the journal under a Creative Commons Attribution-Non Commercial-Non Derives 3.0 Spain (legal text). You can copy, use, distribute, transmit and publicly display, provided that: i) you cite the author and the original source of publication (journal, publisher and URL of the work), ii) they are not used for commercial purposes, iii) mentions the existence and specifications of this license.
3. Conditions of self-archiving. The author can archive the post-print version of the article (publisher’s version) on the author’s personal website and/or on the web of the institution where he belong, including a link to the page of the journal and putting the way of citation of the work. Economics and Business Letters and its URL https://reunido.uniovi.es/index.php/EBL/index are the only authorized source for correctly giving the reference of the publisher’s version in every mention of the article.
