Indicators and Tests of Fiscal Sustainability: An Integrated Approach

Piergallini AlessandroMarini Giancarlo
CEIS Research Paper
This paper shows that indicators and tests of government solvency should not be used alternatively. We present a simple and intuitive procedure to integrate simultaneously the results from the two approaches to fiscal sustainability. An application to U.S. post-World War II data demonstrates the empirical relevance of the proposed strategy. Our results suggest that U.S. fiscal policy is on a sustainable path, since the warning predictions of tax gap indicators merely reflect cyclical factors.
Number: 111
Keywords: Fiscal Sustainability; Fiscal Indicators; Tests of Government Solvency
JEL codes: C12; C22; E60; H60
Volume: 6
Issue: 2
Date: Friday 11 July 2008
Revision Date: Friday 11 July 2008