Legrenzi, G. & Milas, C. (2004). Non-linear adjustments in fiscal policy (Report No. 04/06). London, UK: Department of Economics, City University London.
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This paper provides evidence that the Italian public finances are sustainable, as the country meets its intertemporal budget constraint. Nevertheless, the burden of correcting budgetary disequilibria is entirely carried by changes in taxes, which can have some detrimental economic effects, rather than changes in government spending or policy mixes. Our non-linear analysis, in particular, shows that taxes adjust more rapidly when deviations from the equilibrium level get larger, and that they are downward inflexible not only with respect to their long-run level, but also during periods of decreasing economic growth. In order to correct the undesirable trend of high fiscal pressure and high public debt in Italy, structural expenditure reforms aiming at a higher degree of government expenditure adjustment are needed. This would also relax the asymmetries reported in the paper.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2004 the authors|
|Uncontrolled Keywords:||general government expenditure, general government revenues, cointegration, persistence profile, asymmetries|
|Subjects:||H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
|Divisions:||School of Social Sciences > Department of Economics > Department of Economics Discussion Paper Series|
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