Fiscal policy sustainability, economic cycle and financial crises: The case of the GIPS

Arbeitspapier

We extend previous work on the sustainability of the government's intertemporal budget constraint by allowing for non-linear adjustment of the fiscal variables, conditional on (i) the sign of budgetary disequilibria and (ii) the phase of the economic cycle. Further, our endogenously estimated threshold for the non-linear adjustment is not fixed; instead it is allowed to vary over time and during financial crises. Our analysis presents particular interest within the current economic scenario of financial crises, poor growth and debt crises. Our empirical analysis, applied to the GIPS, shows evidence of a threshold behaviour for the GIPS, that only correct large unbalances, which, in the case of Greece and Portugal, are higher than the EGSP criteria. Financial crises further relax the threshold for adjustment: during financial crises, only very large budgetary unbalances are corrected.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4001

Classification and Topics

• Classification: Wirtschaft ; National Debt; Debt Management; Sovereign Debt ; Taxation, Subsidies, and Revenue: General ; National Budget, Deficit, and Debt: General ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
• Subject: debt sustainability ; fiscal adjustment ; nonlinear models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Legrenzi, Gabriella Deborah ; Milas, Costas
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/68203
• Last update: 10.03.2025, 11:41 AM CET