Deficit sustainability and the fiscal theory of the price levelthe case of Italy, 1861-2020

  1. Congregado, Emilio 1
  2. Díaz-Roldán, Carmen 2
  3. Esteve, Vicente 3
  1. 1 Universidad de Huelva
    info
    Universidad de Huelva

    Huelva, España

    ROR https://ror.org/03a1kt624

    Geographic location of the organization Universidad de Huelva
  2. 2 Universidad de Castilla-La Mancha
    info
    Universidad de Castilla-La Mancha

    Ciudad Real, España

    ROR https://ror.org/05r78ng12

    Geographic location of the organization Universidad de Castilla-La Mancha
  3. 3 Universidad de Alcalá
    info
    Universidad de Alcalá

    Alcalá de Henares, España

    ROR https://ror.org/04pmn0e78

    Geographic location of the organization Universidad de Alcalá
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Journal:
Documentos de Trabajo (IAES, Instituto Universitario de Análisis Económico y Social)

ISSN: 1139-6148

Year of publication: 2023

Issue: 3

Pages: 1-47

Type: Working paper

DIALNET GOOGLE SCHOLAR HANDLE: https://hdl.handle.net/10017/57376

More publications in: Documentos de Trabajo (IAES, Instituto Universitario de Análisis Económico y Social)

Abstract

We address a test for sustainability of the Italian government deficit over the period 1861-2020, using the fiscal theory of the price level (FTPL). This approach takes into account monetary and fiscal policy interactions and assumes that fiscal policy may determine the price level, even if monetary authorities pursue an inflation targeting strategy. We use a cointegrated model with multiple structural changes to characterize the sustainability of public finances and the prevalence of monetary versus fiscal dominance for sub-periods. We also use the recursive unit root tests for explosiveness to test fiscal sustainability and to detect episodes of potential explosive behavior in Italian public debt.

Data source: Dialnet