Sustainability of Public Debt and Budget Deficit: Panel cointegration analysis for the European Union Member countries

Arbeitspapier

In this study, we analyse the sustainability of fiscal policy of EU member countries within the panel cointegration and error-correction frameworks. Unlike the previous empirical papers in this area, we apply the test for panel cointegration between the primary budget deficit and the public debt defined in GDP ratios. Based on the cointegration test results, we conclude that the fiscal policy is consistent with the intertemporal budget constraint, i.e., it is sustainable in the panel of fifteen EU member countries over the period from 1970 to 2004. Hence, we show that the fiscal balance exhibits a significant structural change in the year 1992, when we apply the Banerjee and Carrion-i-Silvestre (2006) test for a structural break in the panel cointegration relationship. In a next step, we search for the politico-economic factors which explain the variation in the sustainable fiscal balance among the European countries. We evidence that the European fiscal rules have a significant positive effect on the improvement of the fiscal position of the governments of the EU member countries.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 0610

Classification and Topics

• Classification: Wirtschaft ; National Deficit; Surplus ; National Debt; Debt Management; Sovereign Debt ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
• Subject: Sustainability ; Budget Deficit ; Panel Cointegration ; Structural Breaks ; Panel error-correction method ; Öffentliche Schulden ; Haushaltsdefizit ; Nachhaltigkeit ; Panel ; Kointegration ; Strukturbruch ; Fehlerkorrekturmodell ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Prohl, Silika ; Schneider, Friedrich G.
• Event: Veröffentlichung
• (who): Johannes Kepler University of Linz, Department of Economics
• (where): Linz
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/73195
• Last update: 10.03.2025, 11:44 AM CET