Baumöhl, Eduard and Výrost, Tomáš and Lyócsa, Štefan (2011): Are we able to capture the EU debt crisis? Evidence from PIIGGS countries in panel unit root framework. Published in: Theoretical and Practical Aspects of Public Finance, XVIth International Conference, Department of Public Finance of the University of Economics in Prague (8. April 2011)
Download (276kB) | Preview
We assess the issue of fiscal sustainability in the selected EU countries. Our sample includes those showing the highest government debts, which are nowadays known under the somewhat degrading acronym – PIIGGS (Portugal, Ireland, Italy, Greece, Great Britain and Spain). Assuming the so-called present value borrowing constraint, stationarity of debts presents a sufficient condition for fiscal sustainability. Utilizing various standard panel unit root tests and the test by Im et al. (2010), we examine this condition on quarterly debt-to-GDP ratios over the period 2000 to 2010. Results provide evidence, that when trend breaks in the series are incorporated, not all of these countries exhibit non-stationarity behavior of their debt-to-GDP ratios.
|Item Type:||MPRA Paper|
|Original Title:||Are we able to capture the EU debt crisis? Evidence from PIIGGS countries in panel unit root framework|
|Keywords:||Fiscal sustainability, Government debt, Panel unit-root tests|
|Subjects:||H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit; Surplus
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series
H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management; Sovereign Debt
|Depositing User:||Eduard Baumöhl|
|Date Deposited:||24. Apr 2011 13:02|
|Last Modified:||14. Feb 2013 10:47|
 Afonso, A. – Rault, Ch. (2008). 3-Step Analysis of Public Finances Sustainability: The Case of the European Union. ECB Working Paper No. 908.
 Afonso, A. – Rault, Ch. (2010). What Do We Really Know about Fiscal Sustainability in the EU? A Panel Data Diagnostic. Review of World Economics, 145(4), 731–55.
 Ahmed, S. – Rogers, J. (1995). Government Budget Deficits and Trade Deficits: Are Present Value Constraints Satisfied in Long-term Data? Journal of Monetary Economics, 36(2), 351–74.
 Ahmed, S. – Rogers, J. (1995). Government budget deficits and trade deficits. Are present value constraints satisfied in long-term data? Journal of Monetary Economics, 36(2), 351–74.
 Bai, J – Perron, P. (1998). Estimating and Testing Linear Models with Multiple Structural Changes. Econometrica, 66(1), 47–48.
 Bai, J. – Perron, P. (2003). Computation and Analysis of Multiple Structural Change Models. Journal of Applied Econometrics, 18(1), 1–22.
 Bergman, M. (2001). Testing Government Solvency and the No Ponzi Game Condition. Applied Economics Letters, 8(1), 27–29.
 Bohn, H. (2007). Are Stationarity and Cointegration Restrictions Really Necessary for the Intertemporal Budget Constraint? Journal of Monetary Economics, 54(7), 1837–47.
 Breitung, J. – Das, S. (2005). Panel Unit Root Tests Under Cross Sectional Dependence. Statistica Neerlandica, 59(4), 414–33.
 Breuer, J.B. – McNown, R. – Wallace, M. (2002). Series-specific Unit Root Tests with Panel Data. Oxford Bulletin of Economics and Statistics, 64(5), 527–46.
 Choi, I. (2001). Unit Root Tests for Panel Data. Journal of International Money and Finance, 20(2), 249–72.
 Choi, I. (2006). Combination Unit Root Tests for Cross-sectionally Correlated Panels. In: Corbae, D. – Durlauf, S. – Hansen, B. (Eds.), Econometric Theory and Practice: Frontiers of Analysis and Applied Research, essays in honor of Peter C. B. Phillips. Cambridge: Cambridge University Press.
 Greiner, A. – Köller, U. – Semmler, W. (2007). Debt Sustainability in the European Monetary Union: Theory and Empirical Evidence for Selected Countries. Oxford Economic Papers, 59(2), 194–218.
 Hadri, K. – Rao, Y. (2008). Panel Stationarity Test with Structural Break. Oxford Bulletin of Economics and Statistics, 70(2), 245–69.
 Hadri, K. (2000). Testing for Stationarity in Heterogeneous Panels. The Econometrics Journal, 3(2), 148–61.
 Hamilton, J. – Flavin, M. (1986). On the Limitations of Government Borrowing: A Framework for Empirical Testing. American Economic Review, 76(4), 808–16.
 Holmes, M. – Otero, J. – Panagiotidis, T. (2010). Are EU Budget Deficits Stationary? Empirical Economics, 38(3), 767–78.
 Im, K. – Lee, J. – Tieslau, M. (2005). Panel LM Unit-Root Tests with Level Shifts. Bulletin of Economics and Statistics, 67(3), 393–419
 Im, K. – Lee, J. – Tieslau, M. (2010). Stationarity of Inflation: Evidence from Panel Unit Root Tests with Trend Shifts. 20th Annual Meetings of the Midwest Econometrics Group, Oct 1-2, 2010. [online] Available at: <http://apps.olin.wustl.edu/MEG Conference/Files/pdf/2010/70.pdf>
 Im, K. – Lee, J. (2001). Panel LM Unit Root Test with Level Shifts. Discussion paper. Department of Economics, University of Central Florida.
 Im, K. – Pesaran, M. – Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53–74.
 Kim, D. – Perron, P. (2009). Unit Root Tests Allowing for a Break in the Trend Function at an Unknown Time Under Both the Null and Alternative Hypothesis. Journal of Econometrics, 148(1), 1–13.
 Lee, J. – Strazicich, M. (2003). Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks. Review of Economics and Statistics, 85(4), 1082–89.
 Levin, A. – Lin, C.F. – Chu, C.S. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties. Journal of Econometrics, 108(1), 1–24.
 Llorca, M. – Redzepagic, S. (2008). Debt Sustainability in the EU New Member States: Empirical Evidence from a Panel of Eight Central and East European Countries. Post-Communist Economies, 20(2), 159–72.
 Maddala, G. – Wu, S. (1999). A Comparative Study of Unit Root Tests and a New Simple Test, Oxford Bulletin of Economics and Statistics, 61(0), 631–52.
 Moon, H. – Perron, B. (2004). Testing for a Unit Root in Panels with Dynamic Factors. Journal of Econometrics, 122(1), 81–126.
 Prohl, S. – Schneider, F. (2006). Sustainability of Public Debt and Budget Deficit: Panel Cointegration Analysis for the European Union Member Countries. Working Paper No. 0610. Department of Economics, Johannes Kepler University Linz.
 Schmidt, P. – Phillips, P. (1992). LM Tests for a Unit Root in the Presence of Deterministic Trends. Oxford Bulletin of Economics and Statistics, 54(3), 257–87.
 Taylor, M.P. – Sarno, L. (1998). The Behavior of Real Exchange Rates during the Post-Bretton Woods Period. Journal of International Economics, 46(2), 281–312.
 Uctum, M. – Wickens, M. (2000). Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis. Oxford Bulletin of Economic Research, 62(2), 197–222.
 Westerlund, J. – Prohl, S. (2010). Panel Cointegration Tests of the Sustainability Hypothesis in Rich OECD Countries. Applied Economics, 42(11), 1355–64.
 Wilcox, D. (1989). The Sustainability of Government Deficits: Implications of the present-value Borrowing Constraint. Journal of Money Credit and Banking, 21(3), 291–306.
 Yazici, B. – Yolacan, S. (2007). A Comparison of Various Tests of Normality. Journal of Statistical Computation and Simulation, 77(2), 175–83.
 Zeileis, A. – Kleiber, C. (2005). Validating Multiple Structural Change Models – An Extended Case Study. Research Report Series: Department of Statistics and Mathematics Wirtschaftsuniversität Wien, Report 12, January 2005.
 Zivot, E. – Andrews, D.W.K. (1992). Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis, Journal of Business and Economic Statistics, 10(3), 251–70.