The sustainability of Portuguese fiscal policy from a historical perspective
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This paper analyses the sustainability of Portuguese public finances, making use of a long dataset with more than a full century of observations. The use of such a long dataset is appropriate because both the unit root and co-integration tests on which the sustainability testing procedure is based require a long period of data. We find considerable evidence in favor of sustainability for the 1903–2003 period which is not, however, maintained for the more recent 1975–2003 period, as it is characterized by the largest GDP deficit ratios of our sample. This latter period appears to signal a shift to an unsustainable path in Portuguese fiscal policy. Hence, our results suggest that fiscal consolidation efforts must, in fact, be continued in Portugal.
KeywordsFiscal sustainability Sustainability of public debt Intertemporal budget constraint Government deficits and debt Portugal
JEL codesE60 H60
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I am grateful to Henning Bohn, Paul de Grauwe and two anonymous referees for very useful comments and suggestions that have much improved this work. I am also grateful to Rui Esteves for providing me with some historical series and references used in Section V. All remaining errors or omissions are solely my responsibility.
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