Government Solvency: Revisiting some EMU countries

Arghyrou, Michael Georgiou ORCID: https://orcid.org/0000-0001-6222-5086 and Luintel, Kul ORCID: https://orcid.org/0000-0001-7430-3926 2007. Government Solvency: Revisiting some EMU countries. Journal of Macroeconomics 29 (2) , pp. 387-410. 10.1016/j.jmacro.2005.09.001

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Abstract

Corsetti and Roubini [Corsetti, G., Roubini, N., 1991. Fiscal deficits, public debt and government solvency: Evidence from OECD countries. Journal of Japanese and International Economies 5, 354–380] reported that the government finances of Greece, Ireland, Italy and the Netherlands (now all EMU countries) did not satisfy the intertemporal budget constraint (IBC). We re-examine this issue by utilizing a new empirical approach and extended data sets. Issues of structural shifts and non-linear fiscal adjustment are tackled. We find that: (i) the fiscal path of these countries went through multiple shifts; (ii) most of these shifts correspond to important policy changes and/or external shocks; (iii) the government finances of all four countries satisfy the IBC across different time horizons; and (iv) fiscal disequilibrium adjusts non-linearly. We also find a clear positive Maastricht effect on the IBC of all countries.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Schools > Business (Including Economics)
Uncontrolled Keywords:	Intertemporal budget constraint; Strong and weak form sustainability; Structural breaks; Non-linear adjustment
ISSN:	01640704
Last Modified:	17 Oct 2022 09:14
URI:	https://orca.cardiff.ac.uk/id/eprint/2520

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