The sustainability of fiscal policy in southern African countries–a comparative empirical perspective

PurposeThe purpose of the paper is to assess the fiscal sustainability of nine southern African countries that belong to the Southern African Development Community.Design/methodology/approachIn this paper, the author performs a novel time-varying analysis of fiscal sustainability in southern African countries.FindingsThe authors found that in Zimbabwe and Namibia, the formal condition of solvency was not fulfilled, resulting in the explosive growth of debt during the recent slowdown. In contrast, Angola, Botswana and Malawi prove to run sustainable fiscal policies, and they were also fiscally invulnerable to the recent unfavourable economic developments in Africa. For the rest of the countries in the sample (Eswatini, Lesotho, South Africa and Zambia), the results are mixed.Originality/valueIn the existing literature, there is abundance of empirical evidence concerning fiscal sustainability in European and American countries. In contrast, there is strikingly little knowledge concerning this phenomenon in African countries. The authors tried to fill this gap using a novel, time-varying approach.

Sustainability of Fiscal Policy in Economic and Monetary Community of Central Africa: An Analysis Based on Panel Data

The objective of this paper is to study the long-term sustainability of fiscal policies in CEMAC, following the pioneering approach of Hamilton and Flavin [10]. Over the period from 1992 to 2012, first and second generation panel stationarity tests suggest that total public expenditures, total revenues, the primary budget balance and public debt are stationary. As a result, fiscal policies are sustainable in the long run within the area. There is a unidirectional causality between government revenues and expenditures. Decisions to increase expenditures are made on the basis of the availability of revenues.

The Sustainability of Public Finances in Spain

Concern regarding deficits in the public accounts in Europe and the United States has led politicians and researchers to consider sustainability of fiscal policy understood as the fulfillment of the intertemporal budget constraint established by the government which indicates the extent to which accumulated and future debt can be paid for by means of current and future taxes, and also cover standard public expenditures.The present article analyzes the sustainability of the national deficit in Spain for the period 1960-2016 by considering public revenue and spending in both real terms and percentages of gross domestic product using data from diverse Spanish sources. It utilizes the equations formulated by Quintos and adapts them when using variables as percentages of gross domestic product. This work concludes that Spanish debt is barely sustainable, which implies the need to instate fiscal reforms or, at least, make an effort towards consolidation.This result is accord with the situation of Spanish debt and deficit in the period after the crisis of 2008.

The sustainability of Swedish fiscal policy: a re-examination

PurposeThis study reexamines the sustainability of fiscal policy in Sweden.Design/methodology/approachTo test the sustainability of fiscal policy, two approaches are used; the methodology of Kejriwal and Perron (2010), testing for multiple structural changes in a cointegrated regression model and time-varying cointegration test of Bierens and Martins (2010), and Martins (2015).FindingsUsing the first approach of testing for multiple structural changes in a cointegrated regression model, the results indicate that government spending and revenue are cointegrated with two breaks. An estimation of a two-break long-run model shows that the slope coefficient increases from 0.678 to 0.892 from the first to the second regime, implying that fiscal deficits were weakly sustainable in the first two regimes, from 1800 to 1943, and from 1944 to 1974. Further, results from time-varying cointegration test indicate that cointegration between spending and revenue in Sweden is time-varying. Fiscal deficits were found to be unsustainable for the periods 1801–1811, 1831–1838, 1853–1860 , 1872–1882, 1897–1902, 1929–1940 and 1976–1982 and weakly sustainable over the rest of the study period.Research limitations/implicationsA number of implications arise from this study: (1) Accounting for breaks in cointegration analysis and in the estimation of the level relationship between spending and revenue is very important because ignoring breaks may lead to an overestimated slope coefficient and hence a bias on the magnitude of fiscal deficit sustainability. (2) In testing for cointegration between spending and revenue, assuming a constant cointegrating slope when it is actually time-varying can also be misleading because deficits can be sustainable for a period of time and unsustainable over another period.Originality/valueThe contribution of this study is three-fold; first, the study uses a long series of annual data spanning over a period of two centuries, from 1800 to 2011. Second, because of the importance of structural change in economics, to examine the existence of a level relationship between spending and revenue, the study uses the methodology of Kejriwal and Perron (2010) to test for multiple structural changes in a cointegrated regression model, as well as time-varying cointegration of Bierens and Martins (2010) and Martins (2015).

Back to the Future

This paper assesses the cyclicality and sustainability of fiscal policy in Belize and applies a stochastic simulation model to determine the optimal set of fiscal rules. The empirical analysis shows that fiscal policy in Belize has been significantly procyclical and unsustainable much of the period since 1976. While the government’s recent commitment to maintain a primary surplus of at least 2 percent of GDP until 2021 is supporting debt reduction, stochastic simulations indicate that further improvement in the primary balance is necessary to reliably bring the debt-to-GDP ratio to a sustainable path. Given Belize’s history of large economic shocks, this paper proposes explicit fiscal rules designed for countercyclical policy and debt sustainability. It recommends integrating such rules into a well-designed fiscal responsibility law and establishing an independent fiscal council to improve accountability and transparency.

Sustainability of fiscal policy in Poland in the period 2004–2017

The aim of this paper is to analyze fiscal sustainability in Poland after joining EU between 2004-2017. Unlike previous studies, which analyzed weak measures of fiscal sustainability, we analyze fiscal sustainability measures in the strong sense. Contrary to previous studies we estimate individual, not panel, fiscal reaction functions which allows us to provide possibly a more accurate picture of fiscal policy outcomes in Poland. Moreover, our empirical analysis takes a closer look at the series of structural breaks that occurred after the global crisis. Based on our analysis we may tentatively conclude that despite cyclical fiscal deterioration during the crisis fiscal policy in Poland has been sustainable in the strong sense up until 2017.