Sustainability of Swiss Fiscal Policy
Swiss Journal of Economics and Statistics / Schweizerische Zeitschrift für Volkswirtschaft und Statistik / Revue Suisse d'Economie politique et de Statistique, Volume 144, Issue 1, 2008, Pages 57-83
Keywords
Sustainability, Budget Deficits, Cointegration, Structural Breaks
Abstract
Was Swiss federal fiscal policy sustainable over the period from 1900 to 2002? We perform unit root and cointegration tests for federal revenues and expenditures, taking into account a structural shift related to World War II. We find sustainability over the entire period. However, splitting the sample into two sub-samples before and after World War II, the results do much less support sustainability. Finally, applying the tax smoothing model of BARRO (1979), we show that cyclical fluctuations of the output and changes in expected inflation rate are major determinants of the federal budget deficit over the time period considered.