Deficit sustainability and the fiscal theory of the price levelthe case of Italy, 1861-2020
- Congregado, Emilio 1
- Díaz-Roldán, Carmen 2
- Esteve, Vicente 3
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1
Universidad de Huelva
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2
Universidad de Castilla-La Mancha
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3
Universidad de Alcalá
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ISSN: 1139-6148
Datum der Publikation: 2023
Nummer: 3
Seiten: 1-47
Art: Arbeitsdokument
Andere Publikationen in: Documentos de Trabajo (IAES, Instituto Universitario de Análisis Económico y Social)
Zusammenfassung
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.