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Assessing long-term fiscal developments: A new approach |
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| Authors: | António Afonso Luca Agnello Davide Furceri Ricardo M Sousa |
| Institution: | a European Central Bank, Directorate General Economics, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany b ISEG/TULisbon - Technical University of Lisbon, Department of Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal c UECE - Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal d University of Palermo, Department of Economics, Italy e OECD, Department of Economics, 2, rue André-Pascal, 75775 Paris Cedex 16, France f University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 Braga, Portugal g London School of Economics, Financial Markets Group (FMG), Houghton Street, London WC2 2AE, United Kingdom |
| Abstract: | We use a new approach to assess long-term fiscal developments. By analyzing the time-varying behaviour of the two components of government spending and revenue - responsiveness and persistence -, a feature not captured by automatic stabilisers, we are able to infer about the sources of fiscal deterioration (improvement). Drawing on quarterly data, we estimate recursively these components within a system of government revenue and spending equations using a Three-Stage Least Square method for eight European Union countries plus the US. The results suggest that significant changes in the fiscal stance (including those related to the current crisis) are reflected in the estimates of persistence and responsiveness. |
| Keywords: | E62 H50 |
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