Assessing Long-Term Fiscal Developments: A New Approach

University of Minho, NIPE Working Paper No. 7/2009

ECB Working Paper No. 1032

42 Pages Posted: 6 Mar 2009

See all articles by António Afonso

António Afonso

University of Lisbon - ISEG (School of Economics and Management); UECE (Research Unit on Complexity and Economics); ISEG Lisbon School of Economics and Management,Universidade de Lisboa; REM - Research in Economics and Mathematics

Luca Agnello

University of Palermo - Department of Economics, Business and Statistics; ECB Fiscal Policies Division

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Ricardo M. Sousa

University of Minho; Economic Policies Research Unit (NIPE); London School of Economics & Political Science (LSE) - Financial Markets Group; London School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 19, 2009

Abstract

We use a new approach to assess long-term fiscal developments. By analyzing the time-varying behaviour of the two components of government spending and revenue - responsiveness and persistence - we are able to infer about the sources of fiscal behaviour.

Drawing on quarterly data we estimate recursively these components within a system of government revenue and spending equations using a Three-Stage Least Square method. In this way we track fiscal developments, i.e. possible fiscal deteriorations and/or improvements for eight European Union countries plus the US. Results suggest that positions have not significantly changed for Finland, France, Germany, Spain, the United Kingdom and the US, whilst they have improved for Belgium, Italy, and the Netherlands.

Keywords: Fiscal Deterioration, Fiscal Sustainability

JEL Classification: E62, H50

Suggested Citation

Afonso, António and Agnello, Luca and Furceri, Davide and Sousa, Ricardo Magalhaes, Assessing Long-Term Fiscal Developments: A New Approach (February 19, 2009). University of Minho, NIPE Working Paper No. 7/2009, ECB Working Paper No. 1032, Available at SSRN: https://ssrn.com/abstract=1354767 or http://dx.doi.org/10.2139/ssrn.1354767

António Afonso

University of Lisbon - ISEG (School of Economics and Management) ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://www.iseg.ulisboa.pt/aquila/homepage/aafonso/research

UECE (Research Unit on Complexity and Economics) ( email )

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://uece.rc.iseg.ulisboa.pt/

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

REM - Research in Economics and Mathematics ( email )

ISEG, Universidade de Lisboa
Rua Miguel Lupi, 20
Lisboa, 1249-078
Portugal

HOME PAGE: http://rem.rc.iseg.ulisboa.pt/

Luca Agnello

University of Palermo - Department of Economics, Business and Statistics ( email )

Viale delle Scienze
Palermo, 90100
Italy

ECB Fiscal Policies Division ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Davide Furceri

University of Palermo ( email )

Viale delle Scienza
Palermo, Palermo 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Ricardo Magalhaes Sousa (Contact Author)

University of Minho ( email )

Campus Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal
+351253604584 (Phone)
+351253676375 (Fax)

HOME PAGE: http://www.eeg.uminho.pt/economia/rjsousa

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://econ.lse.ac.uk

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