- 9 October 2015
- WORKING PAPER SERIES - No. 1858Fiscal policy adjustments in the euro area stressed countries: new evidence from non-linear models with state-varying thresholdsDetails
- We introduce a non-linear model to study the adjustment of fiscal policy variables in Greece, Ireland, Portugal and Spain over the last 50 years, based on endogenously estimated budget deficit-to-GDP thresholds, which vary with fiscal disequilibria, the economic cycle and financial market conditions. We find that the budget deficit-to-GDP thresholds were rather high for Greece and Portugal particularly after 1999 and that the fiscal adjustments in "good" times were very different from the adjustments that took place in "bad" times. We also found that only in Spain fiscal deficits were reduced in expansionary times. Finally, we provide evidence that, under financial market pressure, fiscal authorities relaxed the fiscal deficit-to-GDP threshold for the adjustment in Ireland and Spain and reduced such threshold for the adjustment in Portugal.
- JEL Code
- H63 : Public Economics→National Budget, Deficit, and Debt→Debt, Debt Management, Sovereign Debt
H20 : Public Economics→Taxation, Subsidies, and Revenue→General
H60 : Public Economics→National Budget, Deficit, and Debt→General
C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes