A Synthesis of Empirical Research in the Sustainability of Fiscal Policy

Abstract. In the last twenty years many developed countries have faced significant public deficits, while the ability of government authorities to deal with public deficits has been receiving rising awareness from economists and policy makers. This is an imperative topic, in provisions of economics and public policy, and it is a central subject for the EMU area; hence, they are the main motivations of this paper. Theoretically, equilibrium growth paths have to be supported by adequate fiscal policy. The risk of a default on Greek sovereign debt during the last years has worried the Euro into its first serious crisis and raised the issue of debt sustainability in Europe. There is no universally accepted definition for sustainable fiscal policy. However, economists agree that expanding public debt is not sustainable. Budget policy is constrained by the need to finance the deficit. In this paper we provide a synthesis of empirical research in the validity of the Sustainability of Fiscal Policy of the existing literature for the period 1986-2012. These studies used both time series and panel data sets and empirically examined the Sustainability of fiscal policy for a single country and for a group of countries (multi-country studies). Furthermore, there are studies using data on government expenditure at the provincial or state level. Existing studies in this topic vary in the country selection. They used data for developed, developing countries or group of both, while most of them examined developed or industrial countries. All these studies found different empirical results: support, no support or mixed results.Keywords. Fiscal policy sustainability; Budget deficits; Government debt; cointegration; structural breaks.JEL. E62, H62, H63

On the Complexity of Market Equilibria and Revenue Maximization

This thesis consists of two parts. In the first part, we concentrate on the computation of Market Equilibria and settle the long-standing open problem regarding the computation of an approximate Arrow-Debreu market equilibrium in markets with CES utilities. We prove that the problem is PPAD-complete when the Constant Elasticity of Substitution parameter $\rho$ is any constant less than -1. Building on this result, we introduce the notion of non-monotone utilities, which covers a wide variety of utility functions in economic theory, and prove that it is PPAD-hard to compute an approximate Arrow-Debreu market equilibrium in markets with linear and non-monotone utilities. In the second part, we study Revenue Maximization. We begin by resolving the complexity of the revenue-optimal Bayesian Unit-demand Item Pricing problem when the buyer's values for the items are independent. We show that the problem can be solved in polynomial time for distributions of support size 2; but its decision version is NP-complete for distributions of support size 3. Next, we study the optimal mechanism design problem for a single unit-demand buyer with item values drawn from independent distributions. We show that, for distributions of support-size 2 and the same high value, Item Pricing can achieve the same revenue as any menu of lotteries. On the other hand, we provide simple examples where randomization improves revenue. Finally, we show that unless the polynomial-time hierarchy collapses, namely P^{NP}=P^{#P}, there is no universal efficient randomized algorithm that implements an optimal mechanism even when distributions have support size 3

Military Spending and Economic Growth in Greece and the Arms Race between Greece and Turkey

Abstract. One of the most important reasons that led Greece to the current macroeconomic instability is the high military spending during the last decades. Thus, it is necessary to examine the impact of military spending on economic growth for the case of Greece. Furthermore, it will be very useful to examine the arms race hypothesis between Greece and Turkey in order to identify if there is an interaction between these countries that leads to the high level of military spending. In this paper we empirically test the relationship between military spending and economic growth for Greece and Turkey during 1957-2013, and examine the validity of arms race hypothesis between the two countries. We deployed unit root tests, unit root tests with structural changes, cointegration techniques and finally Granger causality tests. Granger causality tests in the case of Greece and Turkey imply that the causality runs from military spending to economic growth, however we find that there is no evidence of causality between Greek and Turkish military spending, which mean that that these countries act independently.Keywords. National Government Expenditures, National Security and War, Arms race, Greece, Turkey,  Economic Growth,  ADF, VAR.JEL. H5, H56, O40, E62

The validity of Wagner’s Law in Romania during 1995-2015

The aim of this paper is to investigate the relationship between government expenditure and economic growth commonly known as Wagner’s law for one single Central and Eastern European country namely Romania. Using a dataset ranging from 1995 to 2015, we apply latest econometric time series techniques such as unit root test, Johansen cointegration and Granger causality test. The cointegration tests indicate support for Wagner’s hypothesis in all of its five versions, thus suggesting the existence of long-run relationship between government spending and national outcome. The causality tests show the absence of any short-run relationship from economic outcome to government expenditure in three out of five versions. However, taking into consideration that in its original formulation Wagner’s law explored the secular correlation between output and government commitments, we can state that the long run cointegration is more consistent with Adolph Wagner’s perspective

Is there a significant change in the price transmission between producer and retail prices within the British Pork industry?

Abstract. The purpose of this study is to examine price transmission between the producer and retail in the UK pork industry. It aims to find the direction of causality in the long and short-run, and whether there is a long-run relationship between producer and retail prices. This study used monthly time series data for producer and retail prices ranging from 1988-2016. Econometric tests were used such as the Augmented Dickey-Fuller (1979) and Phillips-Perron (1988) Unit Root tests; Bai-Perron (1998) Unit Root test allowing for multiple structural breaks; Johansen (1991) and Engle-Granger (1987) Co-integration tests; Granger (1988) Causality, and the Error Correction Model showing the speed of recovery in the long-run after a shock. The results of the Unit Root tests found both producer and retail prices to be integrated of order one I(1). Three structural breaks were found occurring in the years of 1996, 2002 and 2012. The Co-integration tests found that there is one long-run relationship between producer and retail prices. The Error Correction Model showed the return to a new equilibrium after a shock was 9% per month totalling over 11 months for a full recovery from a shock. The Granger (1988) Causality test indicated that producer prices do Granger cause retail prices in the short-run. In this study the latest econometric techniques were used including structural breaks which some previous studies overlooked. This study into the producer and retail prices in the UK pork industry is the latest study of this kind since the Brexit decision.Keywords. Price transmission, Producer, Retail, Pork, Unit Root, Bai-Perron co-integration, Structural breaks, Error correction model, Causality, Brexit.JEL. L60, L70, L80

The dynamic interrelationship between interest rate and macroeconomic policy objectives: Case of the United Kingdom

Abstract. The objective of this study is to provide empirical evidence on the short- and long-run relationships between the short-term interest rate, London interbank offered rate (LIBOR) and macroeconomic policy objectives, such as price stability, economic growth, and stability of the exchange rate market. For this purpose, we deploy quarterly frequency data from the United Kingdom between 2000 and 2015 and adopt a multiple regression model. Furthermore, this study uses the Johansen, Stock-Watson cointegration test and the Granger Causality test in order to examine the dynamic short- and long-run relationships among LIBOR, the consumer price index as a proxy of price stability, the real gross domestic product as a proxy of economic growth, and the exchange rate as a proxy of exchange rate market stability. The results showed that all variables have the same order of integration and long-run equilibrium relationships exist between them. The results show evidence of long-run equilibrium relationship between the variables with strong evidence of unidirectional granger causality flow from GDP, CPI and exchange rates to LIBOR. The recommendations proposed in this study have important policy implications for the U.K. government. It is therefore recommended that policy makers and government authorities together with the Bank of England develop and pursue sensible fiscal and monetary policies that would aim at stabilizing both the micro- and macroeconomic indicators such as the inflation rate, interest rate, exchange rate, and money supply, to enhance the growth of the economy, especially for the period after the BREXIT decision.Keywords. Macroeconomics, Interest rate, Monetary policy, London interbank offered rate, United Kingdom.JEL. E43, E51, E58