Is the Austrian public debt sustainable?

Abstract

Sustainability of public deficit and debt in the long run has received much attention in the international political agenda. This paper analyses whether Austrian fiscal policies have been sustainable during the last five decades. Tests indicate that Austrian fiscal policies were sustainable from 1960 to 1974, while from 1975 onwards public debt grew much more rapidly. Starting in 1975, the rate of unemployment played a significant role in the sense of a counter-cyclical orientation of Austrian fiscal policy as part of the concept of ‘Austrokeynesianism’. The development of public debt in Austria seems to be driven not only by ideology, but also by structural causes and a shift of the budgetary policy paradigm. We find some empirical evidence that governments in Austria dominated solely by one party run higher deficits than coalitions of the two large parties or the two conservative parties. There are no indications of a political business cycle.