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Public debt, the unit root hypothesis and structural breaks: a multi-country analysis

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  • Merih Uctum

    (Brooklyn College [CUNY, New York] - CUNY - City University of New York [New York], Graduate Center - CUNY - City University of New York [New York])

  • Thom Thurston

    (Graduate Center - CUNY - City University of New York [New York], Queen's College - CUNY - City University of New York [New York])

  • Remzi Uctum

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

We assess fiscal performances in G7 and selected Latin American and Asian countries. We analyze 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 nonstationarity 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 the G7 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," Post-Print halshs-00081527, HAL.
    • Handle: RePEc:hal:journl:halshs-00081527
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00081527
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    References listed on IDEAS

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    Keywords

    fiscal policy; sustainability; government reaction function; structural breaks;
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