Debt Sustainability in the European Monetary Union: Theory and Empirical Evidence for Selected Countries

Posted: 24 Jun 2008

See all articles by Alfred Greiner

Alfred Greiner

Bielefeld University - Department of Business Administration and Economics

Uwe Köller

affiliation not provided to SSRN

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Date Written: April 2007

Abstract

This paper studies the sustainability of fiscal policy for selected Euro-area countries. We focus on those countries that either have a high debt to GDP ratio (Italy) or have recently violated the Maastricht treaty by permitting more than three percent of the deficit to GDP ratio (France, Germany, and Portugal). We apply an approach developed by Bohn who proposes to study whether the primary surplus to GDP ratio is a positive function of the debt to GDP ratio which does not need arbitrary discount rates that other approaches have to assume. By controlling for the impact of other variables in this process, we can show that for the above mentioned countries fiscal policy shows evidence for sustainability, although the three percent rule of the Maastricht treaty might temporarily be violated. We also compare our results from the Euro-area countries to results obtained for the US fiscal policy.

Keywords: JEL classifications: H63, E62

Suggested Citation

Greiner, Alfred and Köller, Uwe and Semmler, Willi, Debt Sustainability in the European Monetary Union: Theory and Empirical Evidence for Selected Countries (April 2007). Oxford Economic Papers, Vol. 59, Issue 2, pp. 194-218, 2007. Available at SSRN: https://ssrn.com/abstract=1150586 or http://dx.doi.org/10.1093/oep/gpl035

Alfred Greiner (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
Bielefeld, 33501
Germany
+49 521 106 4859 (Phone)
+49 521 106 67120 (Fax)

HOME PAGE: http://phoenix.wiwi.uni-bielefeld.de/lehrbereiche/vwl/wipol

Uwe Köller

affiliation not provided to SSRN

Willi Semmler

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universitätsstraße 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

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