Fiscal policy sustainability in some OECD countries: Evidence from panel data

Abstract

Fiscal stability relationship that continues between government revenues and expenditures is one of the important necessities for sustainable fiscal environment. Determining the fiscal sustainability within the process is crucial with regard to satisfying the fiscal balances. This paper tests the sustainability of fiscal policy using the relationship between government revenues and expenditures for eleven OECD countries covering the period 1980-2009 with panel cointegration methods. The results show that the sustainability of fiscal policies for these countries is not sustainable in the long term and it appears that the governments’ behaviours are not coherent to their intertemporal budget constraints.