Title: Solvency and sustainability of fiscal policies in the EU
Authors: Vanhorebeek, F ×
Van Rompuy, Paul #
Issue Date: Nov-1995
Publisher: Kluwer academic publ
Series Title: Economist vol:143 issue:4 pages:457-473
Abstract: This paper focuses on the sustainability and solvency issues of the public sector. Tests for sustainability heavily rely on the time-series properties of the debt-to-GDP ratio, whereas solvency test focus on the deficit inclusive of interest payments. Sustainability and solvency tests are applied first on 8 ERM countries during the period 1970-1994. Subsequently, we concentrate on historical evidence (from 1870 onwards) for the Belgian central government. This long-term view allows for a more accurate time-series analysis. On the one hand, we find historical support for the hypothesis that high and persistent deficits for some periods can be consistent with the present-value budget constraint (solvency), provided that policies are changed eventually. On the other hand, the much stronger requirement of sustainability is not fulfilled since we do not find a tendency of the debt ratio to return to a constant long-run equilibrium level.
ISSN: 0013-063X
Publication status: published
KU Leuven publication type: IT
Appears in Collections:Research Center of Public Economics, Leuven
× corresponding author
# (joint) last author

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