Public finance sustainability in Europe: a behavioral model

Gilles Dufrénot (1) , Carolina Ulloa Suarez (1)

1 AMSE - Aix-Marseille Sciences Economiques

This paper investigates the sustainability of public finances in the European countries since 2002. We provide evidence of heterogenous behaviors among the EU countries and show that, even if they had been forced to focus their fiscal efforts on correcting the deviations of debt from their ceiling -through a correcting mechanism such as the recent TSCG rule-, this would not necessarily have changed the likelihood that debt and deficits become more sustainable. Sources of deviations from stable debt and deficits are related to the macroeconomic environment: the interest-growth differential, momentum dynamics in the sovereign bond markets, how markets react to rising debt.

Mots clés: fiscal rules; euro area; quantile regression; stability

Domaines: Economies et finances

Gilles Dufrénot, Carolina Ulloa Suarez. Public finance sustainability in Europe: a behavioral model. 2019. ⟨halshs-02356400⟩