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Testing Sustainability of German Fiscal Policy. Evidence for the Period 1960-2003Alfred GreinerBielefeld University - Department of Business Administration and Economics Uwe KoellerUniversity of Bielefeld - Department of Business Administration and Economics Willi Semmler Sr.The New School - Department of Economics January 2005 CESifo Working Paper Series No. 1386 Abstract: In this paper, we test whether German public debt has been sustainable by resorting to a test proposed by Bohn (1998). We apply non-parametric and semi-parametric regressions with time depending coefficients. This test shows that the mean of the coefficient relevant for sustainability has been significantly positive over the time period considered. However, there is a negative trend in that coefficient which seems to have ceased to decline only in the middle to late 1990s. Further, we find evidence that the response of the primary deficit is a U-shaped function of the debt ratio which first declines and then rises after a certain threshold of the debt ratio is exceeded.
Number of Pages in PDF File: 32 Keywords: Public debt, intertemporal budget constraint, varying coefficient model, nonparametric estimation JEL Classification: H63, E62 working papers seriesDate posted: January 28, 2005Suggested CitationContact Information
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