IDEAS home Printed from https://ideas.repec.org/p/zbw/safewp/18.html
   My bibliography  Save this paper

Euro membership and fiscal reaction functions

Author

Listed:
  • Weichenrieder, Alfons J.
  • Zimmer, Jochen

Abstract

The paper uses fiscal reaction functions for a panel of euro-area countries to investigate whether euro membership has reduced the responsiveness of countries to shocks in the level of inherited debt compared to the period prior to succession to the euro. While we find some evidence for such a loss in prudence, the results are not robust to changes in the specification, such as an exclusion of Greece from the panel. This suggests that the current debt problems may result to a large extent from preexisting debt levels prior to entry or from a larger need for fiscal prudence in a common currency, while an adverse change in the fiscal reaction functions for most countries does not apply.

Suggested Citation

  • Weichenrieder, Alfons J. & Zimmer, Jochen, 2013. "Euro membership and fiscal reaction functions," SAFE Working Paper Series 18, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:18
    DOI: 10.2139/ssrn.2265312
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/88732/1/775703648.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.2139/ssrn.2265312?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mendoza, Enrique G. & Ostry, Jonathan D., 2008. "International evidence on fiscal solvency: Is fiscal policy "responsible"?," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1081-1093, September.
    2. Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2013. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," Economic Journal, Royal Economic Society, vol. 0, pages 4-30, February.
    3. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 949-963.
    4. Fincke Bettina & Greiner Alfred, 2011. "Debt Sustainability in Selected Euro Area Countries: Empirical Evidence Estimating Time-Varying Parameters," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 15(3), pages 1-23, May.
    5. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August.
    6. Perotti, Roberto, 2007. "Fiscal policy in developing countries : a framework and some questions," Policy Research Working Paper Series 4365, The World Bank.
    7. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-819, September.
    8. Daniel, Betty C. & Shiamptanis, Christos, 2013. "Pushing the limit? Fiscal policy in the European Monetary Union," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2307-2321.
    9. Trehan, Bharat & Walsh, Carl E, 1991. "Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 206-223, May.
    10. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-445, July.
    11. Haug, Alfred A, 1991. "Cointegration and Government Borrowing Constraints: Evidence for the United States," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 97-101, January.
    12. Alfred Greiner & Uwe Köller & Willi Semmler, 2007. "Debt sustainability in the European Monetary Union: Theory and empirical evidence for selected countries," Oxford Economic Papers, Oxford University Press, vol. 59(2), pages 194-218, April.
    13. Thomas Moutos & Christos Tsitsikas, 2010. "Whither Public Interest: The Case of Greece's Public Finances," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(2), pages 170-206, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tilak Abeysinghe & Ananda Jayawickrama, 2013. "A segmented trend model to assess fiscal sustainability: The US experience 1929–2009," Empirical Economics, Springer, vol. 44(3), pages 1129-1141, June.
    2. Gabriel Temesgen Woldu & Izabella Szakálné Kanó, 2024. "Primary surplus dynamics and fiscal sustainability in sub-saharan African countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 41(2), pages 499-519, July.
    3. Aldama, Pierre & Creel, Jérôme, 2019. "Fiscal policy in the US: Sustainable after all?," Economic Modelling, Elsevier, vol. 81(C), pages 471-479.
    4. Abderrahim Chibi & Sidi Mohamed Chekouri & Mohamed Benbouziane, 2019. "The dynamics of fiscal policy in Algeria: sustainability and structural change," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-27, December.
    5. Canofari, Paolo & Marini, Giancarlo & Piergallini, Alessandro, 2020. "Financial Crisis and Sustainability of US Fiscal Deficit: Indicators or Tests?," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 192-204.
    6. Hyejin Ko, 2020. "Measuring fiscal sustainability in the welfare state: fiscal space as fiscal sustainability," International Economics and Economic Policy, Springer, vol. 17(2), pages 531-554, May.
    7. Helmut Herwartz & Malte Rengel, 2018. "Size-corrected inference in fiscal policy reaction functions: a three country assessment," Empirical Economics, Springer, vol. 55(2), pages 391-416, September.
    8. Beqiraj, Elton & Fedeli, Silvia & Forte, Francesco, 2018. "Public debt sustainability: An empirical study on OECD countries," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 238-248.
    9. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(610), S), pages 163-178, Spring.
    10. António Afonso & Christophe Rault, 2010. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 731-755, January.
    11. Malte Rengel, 2020. "Sustainability of European fiscal balances: Just a statistical artifact?," Empirical Economics, Springer, vol. 58(4), pages 1681-1712, April.
    12. Cunado, J. & Gil-Alana, L. A. & Perez de Gracia, F., 2004. "Is the US fiscal deficit sustainable?: A fractionally integrated approach," Journal of Economics and Business, Elsevier, vol. 56(6), pages 501-526.
    13. TINA M. Saeid Mahdavi, 2012. "Bohn’s Test of Fiscal Sustainability of the American State Governments The dramatic fall in state government revenues during the “Great Recession” and the resultant large budget deficits accentuated c," Working Papers 0030, College of Business, University of Texas at San Antonio.
    14. Jakob Korbinian Eberl, 2016. "The Collateral Framework of the Eurosystem and Its Fiscal Implications," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 69, March.
    15. Maria Cornachione Kula, 2019. "The behavior of U.S. States’ debts and deficits," Public Sector Economics, Institute of Public Finance, vol. 43(3), pages 267-289.
    16. Dirk Bursian & Alfons Weichenrieder & Jochen Zimmer, 2015. "Trust in government and fiscal adjustments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(4), pages 663-682, August.
    17. Paniagua, Jordi & Sapena, Juan & Tamarit, Cecilio, 2017. "Fiscal sustainability in EMU countries: A continued fiscal commitment?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 85-97.
    18. Abderrahim Chibi & Sidi Mohamed Chekouri & Mohamed Benbouziane, 2015. "Assessing Fiscal Sustainability in Algeria: a Nonlinear Approach," Working Papers 962, Economic Research Forum, revised Oct 2015.
    19. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-44, March.
    20. Paret, Anne-Charlotte, 2017. "Debt sustainability in emerging market countries: Some policy guidelines from a fan-chart approach," Economic Modelling, Elsevier, vol. 63(C), pages 26-45.

    More about this item

    Keywords

    debt sustainability; fiscal reaction function; euro area;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:safewp:18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/csafede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.