The Italian fiscal history is characterised by a number of fiscal consolidations. In this study, we characterise fiscal policy in terms of non-linear deterministic processes. We find that government spending and taxes can be described as being non-linear trend stationary processes instead of unit roots. A long run equilibrium relationship-a non-linear co-trend-does exist between the two series, fulfilling the intertemporal government budget constraint. We interpret this result as evidence of a long run fiscal rule that different policy makers have adopted, putting public finance in balance.
The Quest for a Fiscal Rule: Italy 1861-1998
Ricciuti, Roberto
2008-01-01
Abstract
The Italian fiscal history is characterised by a number of fiscal consolidations. In this study, we characterise fiscal policy in terms of non-linear deterministic processes. We find that government spending and taxes can be described as being non-linear trend stationary processes instead of unit roots. A long run equilibrium relationship-a non-linear co-trend-does exist between the two series, fulfilling the intertemporal government budget constraint. We interpret this result as evidence of a long run fiscal rule that different policy makers have adopted, putting public finance in balance.
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