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Indicators and Tests of Fiscal Sustainability: An Integrated Approach
Marini Giancarlo and Piergallini Alessandro
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: 11/07/2008

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