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Public Debt, the Unit Root Hypothesis and Structural Breaks: A Multi‐Country Analysis

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  • MERIH UCTUM
  • THOM THURSTON
  • REMZI UCTUM

Abstract

We assess fiscal performances in G7 and selected Latin American and Asian countries. We consider two questions: (i) Have public finances been sustainable? (ii) Do countries follow more restrictive fiscal policies when debt starts to rise? We find that: (i) the traditional unit root tests often overlook the corrective actions taken by many governments; controlling for structural breaks changes the non‐stationarity results dramatically among the three groups; (ii) estimation of a reaction function for governments, expanded by incorporating structural breaks, provides further evidence for significant active anti‐debt policies among G7 countries, and to a lesser extent in the other regions.

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  • Merih Uctum & Thom Thurston & Remzi Uctum, 2006. "Public Debt, the Unit Root Hypothesis and Structural Breaks: A Multi‐Country Analysis," Economica, London School of Economics and Political Science, vol. 73(289), pages 129-156, February.
    • Handle: RePEc:bla:econom:v:73:y:2006:i:289:p:129-156
    DOI: 10.1111/j.1468-0335.2006.00451.x
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