What Do We Really Know About Fiscal Sustainability in the EU? A Panel Data Diagnostic
52 Pages Posted: 26 Feb 2008
There are 3 versions of this paper
What Do We Really Know about Fiscal Sustainability in the EU? A Panel Data Diagnostic
What Do We Really Know About Fiscal Sustainability in the EU? A Panel Data Diagnostic
What Do We Really Know about Fiscal Sustainability in the EU? A Panel Data Diagnostic
Date Written: February 2008
Abstract
We assess the sustainability of public finances in the EU15 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (1999, 2004), generalized by Banerjee and Carrion-i-Silvestre (2006) and Westerlund and Edgerton (2007), to a structural long-run equation between general government expenditures and revenues. While sustainability may be lacking in individual cases, fiscal policy was overall sustainable both for the EU15 panel set, and within some sub-periods.
Keywords: intertemporal budget constraint, fiscal sustainability, EU, panel unit root, panel cointegration
JEL Classification: C23, E62, H62, H63
Suggested Citation: Suggested Citation
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