In this paper, we extend Henning Bohn's (2008) fiscal sustainability test by allowing for slope heterogeneity and cross-sectional dependence (CD). In particular, our econometric approach is the first that allows fiscal reaction functions (FRF) to capture unobserved heterogeneous effects from...

Die Konsolidierung der Staatsfinanzen nach der gegenwärtigen Finanz- und Wirtschaftskrise wird eines der zentralen wirtschaftspolitischen Themen der nächsten Jahre sein: Die Regelungen zur "Schuldenbremse" sehen für den Bundeshaushalt bis 2016 einen annähernd ausgeglichenen Haushalt vor, und...

The European Redemption Pact (ERP), a proposal of the German Council of Economic Experts, describes an exit strategy from the debt crisis which currently plagues the Euro-Area. The pact includes a binding commitment of all participating countries to bring public debt ratios below the reference...

Current developments in Greece make clear that the rules of the European Stability and Growth Pact (SGP) were neither strict enough nor enforced strictly enough. To deal with the ongoing fiscal exit and its related phenomena of crisis, we propose a new framework for fiscal policy consolidation...

This study provides empirical evidence that the costs of austerity crucially depend on the level of private indebtedness. In particular, fiscal consolidations lead to severe contractions when implemented in high private debt states. Contrary, fiscal consolidations have no significant effect on...