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Journal of Economic Integration 2007 March;22(1) :112-127.
DOI: https://doi.org/10.11130/jei.2007.22.1.112
Sustainability of EU Fiscal Policies: a Panel Test

Peter Claeys 

European University Institute, Universitat de Barcelona and SHERPPA
Copyright ©2007 Journal of Economic Integration
ABSTRACT

The fiscal policy rule implicit in the Stability and Growth Pact, has been rationalised as a way to ensure that national fiscal policies remain sustainable within the EU, thereby endorsing the independence of the ECB. We empirically examine the sustainability of European fiscal policies over the period 1970-2001. The intertemporal government budget constraint provides a test based on the cointegration relation between government revenues, expenditures and interest payments. Sustainability is analysed at both the national level and for a European panel. Results show that European fiscal policy has been sustainable overall, yet national experiences differ considerably.

JEL classification:E61, E63, H63

Keywords: Fiscal policy | Debt sustainability | Panel unit root test | Panel cointegration test | EMU
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Dynamic Fiscal Policies and Endogenous Growth  2005 June;20(2)
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