EconStor >
ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >

Please use this identifier to cite or link to this item:
Title:Spend-and-tax adjustments and the sustainability of the government's intertemporal budget constraint PDF Logo
Authors:Legrenzi, Gabriella Deborah
Milas, Costas
Issue Date:2010
Series/Report no.:CESifo working paper 2926
Abstract:We apply non-linear error-correction models to the empirical testing of the sustainability of the government's intertemporal budget constraint. Our empirical analysis, based on Italy, shows that the Italian government is meeting its intertemporal budget constraint, in spite of the high levels of public debt. Nevertheless, the burden of correcting budgetary disequilibria is entirely carried out by changes in the average tax rate, with a weakly exogenous government spending, possibly determined by the political process. We document some rigidities of the tax instrument, in terms of downward inflexibility of the average tax rate, not only with respect to its long-run level, but also during periods of decreasing economic growth. Further, we provide some evidence in favour of a non-linear adjustment towards a sustainable long-run equilibrium, as the average tax rate adjusts faster the farther away it is from the equilibrium.
Subjects:intertemporal budget constraint
non-linear error-correction
fiscal reaction function
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

Files in This Item:
File Description SizeFormat
620068558.pdf305.78 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.