On the Sustainability of Government Deficits: Some Long-Term Evidence for Spain, 1850-2000

Journal of Applied Economics, Vol. 13, No. 2, pp. 263-281, November 2010

Posted: 19 Feb 2011

See all articles by Oscar Bajo‐Rubio

Oscar Bajo‐Rubio

University of Castilla-La Mancha

Carmen Díaz‐Roldán

University of Castilla-La Mancha

Vicente Esteve

University of Valencia - Faculty of Economics; University of La Laguna

Date Written: November 1, 2010

Abstract

We provide a test of the sustainability of the Spanish government deficit over the period 1850-2000, from the estimation of a cointegration relationship between government expenditures and revenues derived from the inter-temporal budget constraint. The longer than usual span of the data allows us to obtain more robust results on the fulfillment of the inter-temporal budget constraint than most of the previous analyses. Two additional robustness checks are provided. First, we investigate the possibility of structural changes occurring along the period analyzed, using the new approach of Kejriwal and Perron (2008, 2010) to testing for multiple structural changes in co-integrated regression models. Second, we investigate whether the behaviour of fiscal authorities has been non-linear, by means of the procedure of Hansen and Seo (2002) based on a threshold co-integration model. Our results show that (i) the government deficit has been strongly sustainable in the long run, (ii) no evidence is found on any significant structural break throughout the whole period, and (iii) fiscal sustainability has been attained due to the non-linear behaviour of fiscal authorities, which have only acted on the budget deficit when it has exceeded around 4.5% of GDP.

Keywords: fiscal policy, sustainability, structural change, threshold cointegration, nonlinearity

JEL Classification: E62, H62

Suggested Citation

Bajo-Rubio, Oscar and Diaz-Roldan, Carmen and Esteve, Vicente, On the Sustainability of Government Deficits: Some Long-Term Evidence for Spain, 1850-2000 (November 1, 2010). Journal of Applied Economics, Vol. 13, No. 2, pp. 263-281, November 2010. Available at SSRN: https://ssrn.com/abstract=1762803

Oscar Bajo-Rubio (Contact Author)

University of Castilla-La Mancha ( email )

Facultad de Derecho y Ciencias Sociales
Ronda de Toledo, s/n
Ciudad Real, E-13071
Spain
+34 926 295300 (Phone)
+34 926 295211 (Fax)

HOME PAGE: http://blog.uclm.es/oscarbajorubio/

Carmen Diaz-Roldan

University of Castilla-La Mancha ( email )

Facultad de Derecho y CC Sociales
Ciudad Real, Ciudad Real 13071
Spain

Vicente Esteve

University of Valencia - Faculty of Economics ( email )

Valencia, E-46022
Spain

University of La Laguna ( email )

United States

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