Non-linear budgetary policies: Evidence from 150 years of Italian public finance

Piergallini, Alessandro; Postigliola, Michele

doi:10.1016/j.econlet.2013.09.030

Cited by 11 publications

(3 citation statements)

References 22 publications

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“…Additional evidence on nonlinear fiscal adjustments over the U.S. fiscal history is provided by Sarno (2001), Arestis, Cipollini and Fattouh (2004), and Cipollini, Fattouh and Mouratidis (2009). Such a type of 'delayed' budgetary policy measures when debt tends to accumulate overtime is also detected for the historical fiscal record in the U.K since 1919 (Considine and Gallagher, 2008;Arghyrou and Fan, 2013) and for European countries historically subject to fiscal imbalances-such as Italy, Spain, Portugal, Ireland and Greece (Bajo-Rubio, Esteve, 2004, 2006;Arghyrou and Luintel, 2007;Legrenzi and Milas, 2012a, 2012bPiergallini and Postigliola, 2013). Postponed corrective actions in the conduct of fiscal policy are further shown to have occurred in Latin American and Caribbean countries (Chortareas, Kapetanios and Uctum, 2008).…”

Section: Related Literature and Model Choicementioning

confidence: 99%

Nonlinear policy behavior, multiple equilibria and debt-deflation attractors

Piergallini

2018

J Evol Econ

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This paper analyzes global dynamics in a macroeconomic model where both monetary and fiscal policies are nonlinear, consistent with empirical evidence. Nonlinear monetary policy, in which the nominal interest rate features an increasing marginal reaction to inflation, interacting with nonlinear fiscal policy, in which the primary budget surplus features an increasing marginal reaction to debt, gives rise to four steady-state equilibria. Each steady state exhibits in its neighborhood a pair of 'active'/'passive' monetary/fiscal policiesà la Leeper-Woodford, and is typically investigated in isolation within linearized monetary models. We show that, when global nonlinear dynamics are taken into account, such steady states are endogenously connected. In particular, the global dynamics reveals the existence of infinite self-fulfilling paths that originate around the steady states locally displaying either monetary or fiscal 'dominance'-and thus locally delivering equilibrium determinacy-as well as around the unstable steady state with active monetary-fiscal policies, and that converge into an unintended high-debt/low-inflation (possibly deflation) attractor. Such global trajectories-bounded by two heteroclinic orbits connecting the three out-of-the-trap steady states-are, however, obscured if the four monetary-fiscal policy mixes are studied locally and disjointly.JEL Classification : E52; E62; E63; D91; C61; C62.

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Section: Related Literature and Model Choicementioning

confidence: 99%

Nonlinear policy behavior, multiple equilibria and debt-deflation attractors

Piergallini

2018

J Evol Econ

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“…Also, a country that adopts a nonlinear fiscal rule could substantially reduce the probability of a solvency crisis, and the adoption of a nonlinear fiscal rule allows a country to reduce the possibility of insolvency without large initial responsiveness. Piergallini and Postigliola (2013) investigate the sustainability of Italy's public finances from 1862 to 2012 adopting a nonlinear perspective. Specifically, they employ the smooth transition regression (STAR) approach to explore the scope for nonlinear fiscal adjustments of primary surpluses in response to the accumulation of debt.…”

Section: Empirical Literaturementioning

confidence: 99%

The dynamics of fiscal policy in Algeria: sustainability and structural change

Chibi¹,

Chekouri²,

Benbouziane

2019

Economic Structures

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The issue of fiscal deficits and their sustainability is of great analytical and empirical interests to both academicians and policy makers. From the theoretical perspective, a large and growing fiscal deficit would lead to a worsening of the current account and appreciation of the real exchange rate. From a policy standpoint, determining whether the fiscal balance is on a sustainable path over time is important because the reply to this inquiry may indicate the requirement for policy reform before the imbalances become insolvent and lead to a hard landing. On the other hand, measuring sustainability of the fiscal deficit has been a highly contentious issue. Recent advancements in time series techniques, notably nonlinear modeling, allow analysts to reexamine the fiscal process and determine whether the fiscal balance is on a sustainable path. After the financial crisis of 2008-2009, the public debt of many countries has been on a steep upward trajectory due to implementation of various stimulus and relief packages directed toward financial sector and the economy as a whole. In fact, some European countries like Greece, Ireland, Portugal, Spain, and Italy are actually in serious dilemma with their public finances, which is reflected in the high yield demanded from the government bonds of these countries.

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“…In a similar empirical context, Piergallini and Postigliola (2013) investigated the sustainability of Italy's public finances from 1862 to 2012 adopting a non-linear perspective. They used a smooth transition regression approach to explore the scope for nonlinear fiscal adjustments of primary surpluses in response to the accumulation of debt.…”

Section: Theoretical Framework and Empirical Literature Reviewmentioning

confidence: 99%

Sustainability of Italian budgetary policies: a time series analysis (1862-2013)

Brady

Magazzino

2017

Eur J Gov Econ

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In this paper, we analyze the sustainability of Italian public finances using a unique database covering the period 1862-2013. This paper focuses on empirical tests for the sustainability and solvency of fiscal policies. A necessary but not sufficient condition implies that the growth rate of public debt should in the limit be smaller than the asymptotic rate of interest. In addition, the debt-to-GDP ratio must eventually stabilize at a steady-state level. The results of unit root and stationarity tests show that the variables are non-stationary at levels, but stationary in first-differences form, or I(1). However, some breaks in the series emerge, given internal and external crises (wars, oil shocks, regime changes, institutional reforms). Therefore, the empirical analysis is conducted for the entire period, as well as two sub‐periods (1862‐1913 and 1947‐2013). Moreover, anecdotal evidence and visual inspection of the series confirm our results. Furthermore, we conduct tests on cointegration, which evidence that a long-run relationship between public expenditure and revenues is found only for the first sub-period (1862-1913). In essence, the paper’s results reveal that Italy have sustainability problems in the Republican age.

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Non-linear budgetary policies: Evidence from 150 years of Italian public finance

Abstract: We investigate the sustainability of Italy's public …nances from 1862 to 2012 adopting a non-linear perspective. Speci…cally, we employ JEL Classi…cation: E62; H60; C20.

Cited by 11 publications

References 22 publications

Nonlinear policy behavior, multiple equilibria and debt-deflation attractors

Nonlinear policy behavior, multiple equilibria and debt-deflation attractors

The dynamics of fiscal policy in Algeria: sustainability and structural change

Sustainability of Italian budgetary policies: a time series analysis (1862-2013)

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