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We estimate fiscal responses for an OECD panel, accounting for cross-country interactions, and also estimate the fiscal responses in a panel VAR. We find that governments have increased primary balances when facing higher government indebtedness, implying a Ricardian fiscal regime, while primary balances have improved to reduce government debt. These results hold for the single regression panel analysis and for the panel VAR. ; UECE is supported by FCT.

The study examines the determinants of fiscal balance and the impact of the selected macroeconomic variables on the primary balance of government. It aims to estimate the fiscal reaction function for Nigeria and determine whether the implementation of fiscal policy is sustainable in the long-run. A Fiscal Reaction model was developed and ARDL technique was used to establish the relationships and interactions among the variables. The study investigated whether the fiscal measures pursued by the government from 2000:Q1 to 2018:Q4 was adequate in addressing the accumulation of huge debt. The analysis of the stylized facts reveals that the government had continued to run budget deficits for almost the entire period, except for a few period. The public debt to GDP, which is a major determinant of the primary balance, is negative and significant implying that a fiscal rule that encourages a strong reduction indebt-to-GDP levels would result in substantial pressure for Nigeria to run large primary surpluses in the future. The CUSUM and CUSUMSQ tests show the recursive residual plots of the fiscal reaction function are within the 5 per cent critical lines, hence, providing evidence of stable fiscal reaction function for Nigeria. The study thus, recommends that, apart from the urgent need for the fiscal authorities to adopt urgent reforms to discourage huge debt accumulation, improve revenue generation capacity and more fundamentally, expenditure switching to improve the quality of expenditure, the transition from primary deficits to primary surpluses should follow a gradual process.

The aim of this paper is to improve on the methodology set in previous attempts to estimate the impact of gross government debt to primary balances in a wide set of 21 CESEE countries. Since the result of the longlasting crisis in those countries is rising imbalance of public finances it is necessary to analyze what factors are causing such effects. Running the fixed effects, pooled and GMM regression it was found that both lagged government debt and output gap are positively related to primary balance. Moreover there was found evidence of non-linear relationship between primary balance and lagged debt, with fiscal fatigue occurrence at 70% threshold. Estimation of the augmented model shows that countercyclical response of primary balance is more pronounced in economic downturn relative to boom in cycle.

We revisit the relationship between the primary balances/GDP and debt/GDP ratios (fiscal reaction function, FRF), in the advanced economies, showing that using adequate tests and estimators leads to question the validity of the current consensus. Using data for 1961–2019, we find that long-run FRFs exist only in a small number of advanced economies (Belgium, Germany, Greece, Norway, Portugal and Sweden), with polynomial effects with fiscal fatigue only in Germany. These results warn against the widespread practice of estimating homogeneous polynomial panel FRFs. Limiting the sample to 1961–2007, thus excluding the 2008 crisis and its aftermath, FRFs hold also in Canada, Ireland, Italy (polynomial), Spain and USA, though not in Germany, and the coefficients are generally larger. Particularly, after 2008 European Union countries appear somehow to have been more likely to implement FRFs.

The aim of this paper is to improve on the methodology set in previous attempts to estimate the impact of gross government debt to primary balances in a wide set of 21 CESEE countries. Since the result of the longlasting crisis in those countries is rising imbalance of public finances it is necessary to analyze what factors are causing such effects. Running the fixed effects, pooled and GMM regression it was found that both lagged government debt and output gap are positively related to primary balance. Moreover there was found evidence of non-linear relationship between primary balance and lagged debt, with fiscal fatigue occurrence at 70% threshold. Estimation of the augmented model shows that countercyclical response of primary balance is more pronounced in economic downturn relative to boom in cycle.

Following the 2008/9 financial and economic crisis, public debt/GDP ratios in several countries rose to their highest levels in 40 years. Also in the US and the UK did the public debt/GDP ratios increase significantly, thereby putting the spotlight again on fiscal sustainability. Based on past behaviour, this article asks whether fiscal policy in these two countries is likely to be sustainable. The article investigates how the US and UK governments, by changing their deficits, react to changes in their debt positions. To do this, the article estimates fiscal reaction functions using Smooth Transition Regressions. It finds that based on past behaviour, fiscal policy in both the US and UK can be expected to remain sustainable. Based on the same past behaviour, and assuming this behaviour will continue in the future, the article also calculates the levels to which the public debt/GDP ratios in the US and UK can be expected to converge.

Abstract This paper evaluates the sustainability of public debt in Brazil using monthly data from January 2003 to June 2016, based on the estimation of fiscal reaction functions with time-varying coefficients. Three estimation methods are considered: Kalman filter, penalized spline smoothing and time-varying cointegration. Besides indicating that the reaction of the primary deficit to variations in the debt/GDP ratio declined over most of the analyzed period, all these methods lead to the conclusion that the Brazilian public debt, given the parameters then in force, reached an unsustainable trajectory in the last years of the sample.

Fiscal Policy sustainability has been a major concern in Ghana with an increasing debt situation. This has led to the Government of Ghana seeking a bailout from the International Monetary fund. The objective of this research is to determine the role of budget deficits on the growth of debt. It will also evaluate the current fiscal stance on sustainable economic growth. This is achieved by testing a fiscal reaction function for the Ghanaian Economy based on the Intertemporal Budget Constraint. The estimation was performed using the Ordinary Least Squares (OLS) estimation technique. Stationarity test for the variables was conducted using the Augmented Dickey-Fuller Tests. The results point to a high degree of inertia present in government behaviour when it sets its primary balance. An increase in past primary deficit leads to an increase in current primary deficits. Also increase in debt has a significant and positive influence on primary balance. The study thus recommends that government should cut down on borrowing to finance its deficits.

Fiscal Policy sustainability has been a major concern in Ghana with an increasing debt situation. This has led to the Government of Ghana seeking a bailout from the International Monetary fund. The objective of this research is to determine the role of budget deficits on the growth of debt. It will also evaluate the current fiscal stance on sustainable economic growth. This is achieved by testing a fiscal reaction function for the Ghanaian Economy based on the Intertemporal Budget Constraint. The estimation was performed using the Ordinary Least Squares (OLS) estimation technique. Stationarity test for the variables was conducted using the Augmented Dickey-Fuller Tests. The results point to a high degree of inertia present in government behaviour when it sets its primary balance. An increase in past primary deficit leads to an increase in current primary deficits. Also increase in debt has a significant and positive influence on primary balance. The study thus recommends that government should cut down on borrowing to finance its deficits.

After the global financial crisis, some governments in the EU experienced serious debt financing problems, while others were less affected. This paper seeks to shed light on the divergent fiscal performance by assessing the fiscal conduct in the EU countries before and after the outbreak of the crisis. Fiscal reaction functions of the primary balance are estimated for different groups of EU countries using quarterly data for the pre-crisis period 2001-2008 and for the post-crisis period 2009-2012. The pre-crisis estimations reveal some differences in persistence and cyclical reaction between different groups of countries, but generally little feedback from the debt stock to the primary balance. The countries that eventually developed fiscal problems do not stand out. The post-crisis estimations show less counter-cyclicality and much more feedback from the debt stock, and these reactions are particularly pronounced for the countries with severe fiscal problems.