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The Sustainability of Portuguese Fiscal Policy in Democracy, 1974–2020

Author

Listed:
  • Ricardo Ferraz

    (RCM2+/Universidade Lusófona)

  • Joaquim Miranda Sarmento

    (ADVANCE/CSG/Lisbon School of Economics & Management (ISEG), Universidade de Lisboa)

  • António Portugal Duarte

    (Universidade de Coimbra)

Abstract

In the current year of 2024, Portugal celebrates half a century of Democracy. In this paper we test the sustainability of Portuguese fiscal policy during this most recent period of Portuguese history – a time when the principle of sound finance is no longer proclaimed as a dogma. Using data taken from different sources, we conclude that, although Portugal has experienced very troubled periods throughout its Democracy, fiscal policy was sustainable during 1974–2020. This sustainability was, however, weak. Our conclusion is based on a difference stationary public debt ratio, on a stationary budget deficit as a percentage of GDP, and, also on the existence of a long-term relation between public revenues and expenditures ratios with a reduced cointegration coefficients. The findings of this paper reinforce the need for Portuguese policymakers to ensure the sustainability of public finances and public debt which is crucial to sustain the Portuguese welfare state itself.

Suggested Citation

  • Ricardo Ferraz & Joaquim Miranda Sarmento & António Portugal Duarte, 2024. "The Sustainability of Portuguese Fiscal Policy in Democracy, 1974–2020," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 22(3), pages 749-772, September.
    • Handle: RePEc:spr:jqecon:v:22:y:2024:i:3:d:10.1007_s40953-024-00402-0
    DOI: 10.1007/s40953-024-00402-0
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