What do we really know about fiscal sustainability in the EU? A panel data diagnostic

We assess the sustainability of public finances in the EU15 over the period 1970-2006 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (1999, 2004), generalized by Banerjee and Carrion-i-Silvestre (2006) and Westerlund and Edgerton (2007), to a structural long-run equation between general government expenditures and revenues. While estimations point to fiscal sustainability being an issue in some countries, fiscal policy was sustainable both for the EU15 panel set, and within sub-periods (1970-1991 and 1992-2006)http://deepblue.lib.umich.edu/bitstream/2027.42/64361/1/wp893.pd

Portugal is the pupil that gets good grades for learning bad lessons

While the negotiations over Cyprus’s bailout agreement have been extremely controversial, this month also saw the EU and IMF relax the terms of their financial assistance to Portugal. Alexandre Afonso details some of the main reasons why Portugal has been treated much more leniently in negotiations. Despite falling short of economic targets, the country has been praised for its determination to implement austerity policies. However the extent to which the crisis has encouraged emigration by young Portuguese citizens may pose a future problem for the sustainability of Portugal’s welfare state

A note on Probably Certifiably Correct algorithms

Many optimization problems of interest are known to be intractable, and while there are often heuristics that are known to work on typical instances, it is usually not easy to determine a posteriori whether the optimal solution was found. In this short note, we discuss algorithms that not only solve the problem on typical instances, but also provide a posteriori certificates of optimality, probably certifiably correct (PCC) algorithms. As an illustrative example, we present a fast PCC algorithm for minimum bisection under the stochastic block model and briefly discuss other examples

Ricardian Fiscal Regimes in the European Union

The prevalence of either Ricardian or non-Ricardian fiscal regimes is important both for practical policy reasons and to assess fiscal sustainability, and this is of particular relevance for European Union countries. The purpose of this paper is to assess, with a panel data set, the empirical evidence concerning the existence of Ricardian fiscal regimes in EU-15 countries. The results give support to the Ricardian fiscal regime hypothesis throughout the sample period, and for sub-samples accounting for the dates of the Maastricht Treaty and for the setting-up of the Stability and Growth Pact. Additionally, electoral budget cycles also seem to play a role in fiscal behaviour.fiscal regimes; European Union; panel data models.

Disturbing the fiscal theory of the price level: Can it fit the eu-15?

With the fiscal theory of the price level (FTPL), Leeper-Sims-Woodford (LSW) argued that the government budget constraint plays a key role in determining the price level. Indeed, there could even be a dispute vis-à-vis the role of monetary policy in the formation of the price level. Apart from several theoretical criticisms, also addressed in the discussion given in this paper, the attempts to validate empirically the novel theory are, so far, rather sparse. Therefore, one of the purposes of this paper is to tentatively assess the possible empirical evidence, concerning the FTPL, for the EU-15 countries.Fiscal theory of the price level; fiscal policy; EU-15; panel data models