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Empirical Economics

, Volume 41, Issue 2, pp 371–385 | Cite as

Assessing fiscal sustainability subject to policy changes: a Markov switching cointegration approach

  • Vasco J. Gabriel
  • Pataaree Sangduan
Article

Abstract

We propose a Markov switching cointegration approach to assess long run fiscal sustainability. This method allows us to simultaneously: (1) test for cointegration in the presence of significant fiscal policy changes; (2) assess the type of fiscal regime that a country experienced at a given period and (3) analyse the timing of the transition between the estimated regime types. Given its flexibility, our approach enable us to uncover a richer and more complex dynamics in the analysis of fiscal sustainability, which standard linear cointegration methods fail to capture.

Keywords

Fiscal sustainability Markov switching Cointegration 

JEL Classification

C22 E62 H60 

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Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of SurreyGuildford, SurreyUK
  2. 2.NIPE-University of MinhoBragaPortugal
  3. 3.Bureau of the BudgetBangkokThailand

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