Fiscal sustainability in E.U.27

Abstract

The present study is an attempt to investigate the budget deficit sustainability in the case of E.U. (European Union) 27, for the period 2000:04 - 2009:04 with quarterly observations using linear and nonlinear unit root tests in the panel framework. The main results illustrate that the fiscal policy is more sustainable in the euro area, than fiscal policy in non-euro zone. Only the linear tests of sustainability in euro area confirm the deficit criteria in terms of Maastricht Treaty and the stability and growth pact, as very important conditions for maintaining the sustainability and stabilization of the public finance in E.U. countries.