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Fiscal Sustainability in the EU: A Panel Data DiagnosticAntónio AfonsoEuropean Central Bank (ECB); ISEG - Technical University of Lisbon Christophe RaultUniversity of Orleans; Université d'Évry - Centre D'Etudes des Politiques Economiques et de L'Emploi (EPEE); Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) April 3, 2008 Abstract: We assess the sustainability of public finances in the EU15 over the period 1970-2006 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (1999, 2004), generalized by Banerjee and Carrion-i-Silvestre (2006) and Westerlund and Edgerton (2007), to a structural long-run equation between general government expenditures and revenues. While estimations point to fiscal sustainability being an issue in some countries, fiscal policy was sustainable both for the EU15 panel set, and within sub-periods (1970-1991 and 1992-2006).
Number of Pages in PDF File: 20 Keywords: intertemporal budget constraint, fiscal sustainability, EU, panel unit root, panel cointegration JEL Classification: C23, E62, H62, H63 working papers seriesDate posted: February 2, 2012Suggested CitationContact Information
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