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A Synthesis of Empirical Research in the Sustainability of Fiscal Policy

Author

Listed:
  • Dimitrios PAPARAS
  • Christian RICHTER
  • Alexandros PAPARAS

    (Harper Adams University, U.K.)

Abstract
In the last twenty years many developed countries have faced significant public deficits, while the ability of government authorities to deal with public deficits has been receiving rising awareness from economists and policy makers. This is an imperative topic, in provisions of economics and public policy, and it is a central subject for the EMU area; hence, they are the main motivations of this paper. Theoretically, equilibrium growth paths have to be supported by adequate fiscal policy. The risk of a default on Greek sovereign debt during the last years has worried the Euro into its first serious crisis and raised the issue of debt sustainability in Europe. There is no universally accepted definition for sustainable fiscal policy. However, economists agree that expanding public debt is not sustainable. Budget policy is constrained by the need to finance the deficit. In this paper we provide a synthesis of empirical research in the validity of the Sustainability of Fiscal Policy of the existing literature for the period 1986-2012. These studies used both time series and panel data sets and empirically examined the Sustainability of fiscal policy for a single country and for a group of countries (multi-country studies). Furthermore, there are studies using data on government expenditure at the provincial or state level. Existing studies in this topic vary in the country selection. They used data for developed, developing countries or group of both, while most of them examined developed or industrial countries. All these studies found different empirical results: support, no support or mixed results.

Suggested Citation

  • Dimitrios PAPARAS & Christian RICHTER & Alexandros PAPARAS, 2015. "A Synthesis of Empirical Research in the Sustainability of Fiscal Policy," Journal of Economics Bibliography, KSP Journals, vol. 2(4), pages 164-183, December.
    • Handle: RePEc:ksp:journ6:v:2:y:2015:i:4:p:164-183
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    References listed on IDEAS

    as
    1. Joakim Westerlund & Silika Prohl, 2010. "Panel cointegration tests of the sustainability hypothesis in rich OECD countries," Applied Economics, Taylor & Francis Journals, vol. 42(11), pages 1355-1364.
    2. Trehan, Bharat & Walsh, Carl E, 1991. "Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 206-223, May.
    3. Wu, Jyh-lin, 1998. "Are budget deficits "too large"?: The evidence from Taiwan," Journal of Asian Economics, Elsevier, vol. 9(3), pages 519-528.
    4. Smith, Gregor W & Zin, Stanley E, 1991. "Persistent Deficits and the Market Value of Government Debt," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(1), pages 31-44, Jan.-Marc.
    5. Gauthier Tshiswaka-Kashalala, 2006. "Is Fiscal Policy Sustainable in South Africa? An Application of the Econometric Approach," Working Papers 200614, University of Pretoria, Department of Economics.
    6. Tanner, Evan & Liu, Peter, 1994. "Is the Budget Deficit "Too Large"?: Some Further Evidence," Economic Inquiry, Western Economic Association International, vol. 32(3), pages 511-518, July.
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    Cited by:

    1. Michał Mackiewicz, 2021. "The sustainability of fiscal policy in southern African countries–a comparative empirical perspective," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 18(2), pages 337-350, April.
    2. del Castillo, Ernesto & Cabral, René, 2024. "Subnational public debt sustainability in Mexico: Is the new fiscal rule working?," European Journal of Political Economy, Elsevier, vol. 82(C).
    3. Chen, Shyh-Wei & Wu, An-Chi, 2018. "Is there a bubble component in government debt? New international evidence," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 467-486.
    4. Bystrov, Victor & Mackewicz, Michał, 2016. "Recurrent explosive behaviour of debt-to-GDP ratio," MPRA Paper 75203, University Library of Munich, Germany.
    5. Juan Carlos Cuestas & Luis A. Gil-Alana & Laura Sauci, 2020. "Public finances in the EU-27: Are they sustainable?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(1), pages 181-204, February.

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    More about this item

    Keywords

    Fiscal policy sustainability; Budget deficits; Government debt; cointegration; structural breaks.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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