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Assessing the sustainability of fiscal policies: Empirical evidence from the Euro Area and the United States

Author

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  • Luigi Landolfo

    (University of Warwick)

Abstract

This paper provides a formal theoretical framework for analyzing the sustainability of fiscal policy based on the government intertemporal budget constraint, and derives conditions that determine whether a fiscal stance is sustainable in the medium and long term. In contrast to previous studies, it uses a log-linearization of the public debt identity and generalizes the results obtained in the literature by using a multivariate test. The analysis is applied to the fiscal position of the United States and the Euro Area. On the basis of infinite horizon-tests the broad conclusion is that both regions have a sustainable fiscal policy.

Suggested Citation

  • Luigi Landolfo, 2008. "Assessing the sustainability of fiscal policies: Empirical evidence from the Euro Area and the United States," Journal of Applied Economics, Universidad del CEMA, vol. 11, pages 305-326, November.
    • Handle: RePEc:cem:jaecon:v:11:y:2008:n:2:p:305-326
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    File URL: https://ucema.edu.ar/publicaciones/download/volume11/landolfo.pdf
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    Citations

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    Cited by:

    1. Ionel Bostan & Carmen Toderașcu & Anca Florentina Gavriluţă (Vatamanu), 2018. "Challenges and Vulnerabilities on Public Finance Sustainability. A Romanian Case Study," JRFM, MDPI, vol. 11(3), pages 1-24, September.
    2. Mura Petru-Ovidiu, 2015. "Public Finance Sustainability In Romania. Recent Developments," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 757-769, July.
    3. António Afonso & Raquel Balhote, 2014. "Interactions between Monetary Policy and Fiscal Policy," Working Papers Department of Economics 2014/13, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    4. Nimai Das, 2013. "Subnational-level Fiscal Health Stability and sustainability implications for Kerala, Punjab, and West Bengal," IEG Working Papers 329, Institute of Economic Growth.
    5. Alani, Jimmy, 2020. "Intertemporal Government Budget Constraint: Debts and Economic Growth in Ethiopia, 1990–2018," MPRA Paper 103180, University Library of Munich, Germany, revised 17 May 2020.
    6. Nimai Das, 2015. "Subnational level fiscal health in India: stability and sustainability implications," Economic Change and Restructuring, Springer, vol. 48(1), pages 71-91, February.
    7. Kurniawan, Rudi, 2012. "Sustainability of Fiscal Policy and Government Revenue-Expenditure Nexus: The Experience of Indonesia," MPRA Paper 65883, University Library of Munich, Germany.

    More about this item

    Keywords

    fiscal policy; sustainability of fiscal policy; VAR; VECM;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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