3-Step Analysis of Public Finances Sustainability: the Case of the European Union

António Afonso (1) , Christophe Rault (2)

1 BCE - Banque Centrale Européenne
2 LEO - Laboratoire d'économie d'Orleans [2008-2011]

We use a 3-step analysis to assess the sustainability of public finances in the EU27. Firstly, we perform the SURADF specific panel unit root test to investigate the meanreverting behaviour of general government expenditures and revenues ratios. Secondly, we apply the bootstrap panel cointegration techniques that account for the time series and cross-sectional dependencies of the regression error. Thirdly, we check for a structural long-run equation between general government expenditures and revenues via SUR analysis. While results imply that public finances were not unsustainable for the EU panel, fiscal sustainability is an issue in most countries, with a below unit estimated coefficient of expenditure in the cointegration relation.

Mots clés: fiscal sustainability; EU; panel cointegration.; panel cointegration

Domaines: Economies et finances

António Afonso, Christophe Rault. 3-Step Analysis of Public Finances Sustainability: the Case of the European Union. 2008. ⟨hal-00322086⟩