Fiscal Deficits, Public Debt and Government Solvency: Evidence from OECD Countries

74 Pages Posted: 3 May 2004 Last revised: 15 Jul 2010

See all articles by Giancarlo Corsetti

Giancarlo Corsetti

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); University of Rome III - Department of Economics; Centre for Economic Policy Research (CEPR)

Nouriel Roubini

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 1991

Abstract

This paper discusses different empirical tests of public sector solvency and applies them to a sample of 18 OCED countries. Provided that the government solvency constraint need to be imposed, these tests develop from the idea of verifying whether the intertemporal budget constraint of the public sector would be satisfied a) had the fiscal and financial policy in the sample been pursued indefinitely and b) were the relevant macro and structural features of the economy stable over time. If solvency is not supported by the empirical evidence, a change either in the policy or in the relevant macro and structural variables (growth, inflation, interest rates, demographic factors) must occur at some point in the future. Among the G-7 countries, public sector solvency seems a serious issue in Italy, while does not appear to be a problem in the cases of Germany and Japan. The evidence for the U.S.A. is mixed. Problems of sustainability of the current path of fiscal policies are also present in Belgium, Ireland, the Netherlands and Greece.

Suggested Citation

Corsetti, Giancarlo and Roubini, Nouriel, Fiscal Deficits, Public Debt and Government Solvency: Evidence from OECD Countries (March 1991). NBER Working Paper No. w3658. Available at SSRN: https://ssrn.com/abstract=420288

Giancarlo Corsetti (Contact Author)

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

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Italy

University of Rome III - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Nouriel Roubini

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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New York, NY 10003
United States
212-998-0886 (Phone)
212-995-4218 (Fax)

National Bureau of Economic Research (NBER)

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