Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154291
Authors: 
De Santis, Roberto A.
Legrenzi, Gabriella
Milas, Costas
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1858
Abstract: 
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.
Subjects: 
budgetary disequilibria
euro periphery
European debt crisis
fiscal adjustments
non-linear models
JEL: 
H63
H20
H60
C22
ISBN: 
978-92-899-1671-4
Document Type: 
Working Paper

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