Determinants of the Degree of Fiscal Sustainability

REM Working Paper 255-2023

24 Pages Posted: 4 Jan 2023

See all articles by António Afonso

António Afonso

Technical University of Lisbon (UTL) - Department of Economics; UECE (Research Unit on Complexity and Economics); ISEG Lisbon School of Economics and Management,Universidade de Lisboa; REM - Research in Economics and Mathematics

José Alves

University of Lisbon; ISEG Lisbon School of Economics and Management,Universidade de Lisboa; REM - Resarch in Economics and Mathematics

José Coelho

ISEG Lisbon School of Economics and Management,Universidade de Lisboa

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Date Written: January 3, 2023

Abstract

We assess the link between fiscal sustainability coefficients, namely the responses of the primary government balance and the global government balance to the debt-to-GDP ratio, and the response of government revenues to government expenditures. For 22 OECD developed countries we use annual data between 1950 and 2019. Other determinants of fiscal responses are also studied in the context of quantile regressions. We find that the output gap contributes to increasing fiscal sustainability by positively influencing the responsiveness of the primary and global government balances; the responses of the primary and global government balances to the debt ratio and the response of government revenues to government expenditures depend on the level of the debt ratio. In addition, from the quantile analysis, the influence of the response of government revenues to government expenditures is negative and increasing over the deciles, confirming the existence of a negative cross-relationship between the fiscal sustainability coefficients.

Keywords: fiscal reaction function; fiscal determinants; panel data; quantile regressions

JEL Classification: C23, H61, H63, E62

Suggested Citation

Afonso, António and Alves, José and Coelho, José, Determinants of the Degree of Fiscal Sustainability (January 3, 2023). REM Working Paper 255-2023, Available at SSRN: https://ssrn.com/abstract=4316931

António Afonso (Contact Author)

Technical University of Lisbon (UTL) - Department of Economics ( email )

R. Miguel Lupi, 20
Lisbon, 1248-078
Portugal
+351 21 392 5985 (Phone)
+351 21 396 6407 (Fax)

HOME PAGE: http://www.iseg.ulisboa.pt/aquila/homepage/aafonso/research

UECE (Research Unit on Complexity and Economics) ( email )

Rua Miguel Lupi 20
Lisbon, 1249-078
Portugal
+351-213 925 912 (Phone)
+351-213 971 196 (Fax)

HOME PAGE: http://uece.rc.iseg.ulisboa.pt/

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

REM - Research in Economics and Mathematics ( email )

ISEG, Universidade de Lisboa
Rua Miguel Lupi, 20
Lisboa, 1249-078
Portugal

HOME PAGE: http://rem.rc.iseg.ulisboa.pt/

José Alves

University of Lisbon ( email )

R. Branca Edmée Marques
Dept. Plant Biology
Lisboa, 1600-276
Portugal

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

REM - Resarch in Economics and Mathematics ( email )

ISEG Universidade de Lisboa
Rua Miguel Lupi 20
Lisboa, 1249-078
Portugal

José Coelho

ISEG Lisbon School of Economics and Management,Universidade de Lisboa ( email )

Rua do Quelhas 6
LISBOA, 1200-781
Portugal

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