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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 01 de 2005


Sustainability of Portuguese Fiscal Policy in Historical Perspective

(Publicado em Empirica 33(2-3): 155-179, 2006)

Carlos F. Marinheiro
Faculdade de Economia and GEMF, Universidade de Coimbra

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 unit root and cointegration tests require a long period of data. The sustainability testing procedure is based on unit root and cointegration tests. We find considerable evidence in favour of sustainability for the 1903-2003 period. The overall conclusion of sustainability for the 1903-2003 period is not maintained for the more recent 1975-2003 period, which is characterised 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.

JEL Classification: E60; H60.

Keywords: Fiscal sustainability; sustainability of public debt; intertemporal budget constraint; government deficits and debt; Portugal.

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