Abstract
In this paper we test how the primary surplus in two countries of the euro area, Germany and Italy, reacts to changes of public debt. Our theoretical part demonstrates that a positive reaction on average gives strong evidence for a sustainable debt policy. In the empirical part, we perform semi-parametric estimations using penalized spline smoothing. The results suggest that there is evidence for sustainable debt policy in Germany, however, with a declining tendency. Italian public debt does not seem to be sustainable although consolidation efforts in the nineties have stabilized Italian debt. However, the conclusion as regards Italy must be made with caution because the statistical significance is small.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.