Greek Budget Deficits, Structural Breaks and the Concept of Sustainability: New Econometric Evidence

Economics and Business Review, Vol. 8, No. 3, pp. 263-278, 2006

Posted: 7 Jan 2013

See all articles by Constantinos Katrakilidis

Constantinos Katrakilidis

Aristotle University of Thessaloniki - Department of Economics

Nicholas Tabakis

Alexander Technological Educational Institute of Thessaloniki - Department of Agricultural Development and Agribusiness Management

Date Written: 2006

Abstract

This paper attempts to investigate the concept of the sustainability of Greek fiscal policy. Several procedures to test such sustainability have been proposed in the relevant literature, which focuses on the univariate properties of the public deficit and on the presence of a long-run relationship between government spending and revenues. Our empirical analysis uses an approach proposed by Martin (2000) and is based on a cointegration model allowing for multiple endogenous breaks in both the intercept and slope parameters. The methodology produces an inference about the value of the cointegrating parameters, as well as the size and the timing of shifts in the relationship. Practical advantages arising from the estimation of models with structural changes are, among others, the identification of events that may have fostered the structural changes and better forecasts when the most recent regime is used. The results reveal that the Greek public deficit is sustainable, in the weak sense of the term. The above findings imply possible future problems and call for fiscal reforms.

Keywords: Budget deficit, Cointegration, Structural breaks, Sustainability

JEL Classification: C32, E62, H62

Suggested Citation

Katrakilidis, Constantinos and Tabakis, Nicholas, Greek Budget Deficits, Structural Breaks and the Concept of Sustainability: New Econometric Evidence (2006). Economics and Business Review, Vol. 8, No. 3, pp. 263-278, 2006, Available at SSRN: https://ssrn.com/abstract=2197532

Constantinos Katrakilidis (Contact Author)

Aristotle University of Thessaloniki - Department of Economics ( email )

Thessaloniki, 54124
Greece

HOME PAGE: http://users.auth.gr/katrak

Nicholas Tabakis

Alexander Technological Educational Institute of Thessaloniki - Department of Agricultural Development and Agribusiness Management ( email )

P.O. Box 141
Sindos Thessaloniki, GR-57400
Greece

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