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Economics and Business
ISSN 2256-0394 (online)
ISSN 2256-0386 (print)
2018, 32, 36–50
doi: 10.1515/eb-2018-0003
https://www.degruyter.com/view/j/eb
36
©2018 Recardo Ferraz. This is an open access article licensed under the
Creative Commons Attribution License (http://creativecommons.org/
licenses/by/4.0), in the manner agreed with De Gruyter Open.
HAVE PUBLIC FINANCES IN THE OECD AREA BEEN
SUSTAINABLE?
Ricardo FERRAZ
Lisbon School of Economics & Management, University of Lisbon (ISEG),
Lisbon, Portugal
Corresponding author’s e-mail: ferraz@ghes.iseg.ulisboa.pt
Abstract. The aim of this article is to test, from an empirical standpoint, the
existence of sustainable public finances in the Organisation for Economic Co-
operation and Development (OECD) area as a whole, over the most recent period
of the world economy, 1973–2016. The research methods include not only
standard stationarity tests, but also tests, which allow for a structural break. The
relevant results of this research are a stationary public budget balance expressed
as a percentage of GDP and a debt to GDP ratio that is stationary in first
differences. According to the literature, this means that a “necessary and
sufficient” condition is fulfilled for proving the existence of a strong
sustainability. We hope this research can make a valuable contribution to the
debate regarding public finances in the world economy. To obtain other relevant
conclusions, additional tests will need to be performed in the future in order to
assess which members are contributing to the fiscal sustainability of the OECD
aggregate.
Keywords: Organisation for economic co-operation and development (OECD)
area, public debt, public budget, sustainable public finances.
JEL Classification: E60, H60.
INTRODUCTION
In the theoretical literature, it is possible to find a number of similar definitions
for sustainable public finances / fiscal policy sustainability. These definitions are
founded on the premise of the government’s solvency.
According to Blanchard et al. (1990), a sustainable fiscal policy can be defined
as a policy that makes the ratio of debt eventually converge back to its initial level.
On the other hand, as pointed out by Chalk and Hemming (2000), it requires that
today’s debt should be matched by an excess of future primary surpluses over
primary deficits at current values. Adopting a similar position, the European Central
Bank (2011) defined fiscal sustainability as the government’s capacity to service its
debt obligations in the long term, which means that a government that has
outstanding debt therefore has to produce primary surpluses in the future, and these
have to be large enough to accommodate the cost of servicing the government’s
debt obligations.
European Commission (2016) also stated that the sustainability of public
finances, sometimes referred to as fiscal sustainability, is the ability of a
government to sustain its policies in the long run without threatening the
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government’s solvency or without defaulting. Therefore, a fiscal policy can be
considered as unsustainable if, over time, it leads the government away from
solvency.
Based on this concept of sustainability – associated with the government’s
solvency – some academic studies have been conducted with the aim of testing the
sustainability of public finances / sustainability of fiscal policy in many different
countries. However, it was not possible to identify any study that so far has analysed
the sustainability of finances in the Organisation for Economic Cooperation and
Development (OECD) area as a whole; meaning all the thirty-five member
countries assessed as if they were one body.
Assessing the sustainability of this economic aggregate is an interesting issue,
since it is composed of many different realities presented in more than one
continent, which have been subjected to various shocks over the last decades.
Taking this into account, the main aim of this article is to test the existence of
sustainable public finances in the OECD over the most recent period of the world
economy
1
; starting in 1973, and ending in 2016. This is a relatively broad time
horizon – slightly over four decades – for which comparable data relating to the
public finances are available.
After the present introduction, Section 1.1 provides a brief analysis of the data.
This is followed by Section 1.2, in which a framework for the empirical approach
is presented. In Section 2, the sustainability of the OECD economy is tested and the
results are analysed. Finally, the conclusions are documented.
1. METHODS AND PROCEDURES
1.1. The Public Finances Data: Brief Analysis
Official statistics of public finances for a relatively long time horizon, and for
different nations and economic aggregates (for example, the OECD area or the euro
area), is available in the OECD databases. Based on those statistics, it is possible,
first of all, to analyse the evolution of the OECD area public revenue and
expenditure as a percentage of GDP.
Thus, through a close observation of Figure 1, it is possible to highlight some
relevant facts with regard to the behaviour of these two variables during the most
recent period in the world economy, 1973–2016.
First of all, it can be seen that, despite various oscillations, public revenue and
expenditure (% of GDP) as a whole showed a slight tendency to increase in the
period under analysis.
Secondly, it can be seen that there were sharp increases in public expenditure
in the following sub-periods: 1974–1975, 1980–1982, 1991–1992 and 2008–2009,
which were not accompanied by increases in revenue of a similar size.
1
We must draw attention to Angus Maddison’s periodisation for the development of the world
economy: 1) 1820–1870; 2) 1870–1913; 3) 1913–1950 (“Belle Époque”); 4) 1950–1973 (“Golden
Age”); 5) 1973 to present. About this topic, see, for example, Maddison (1995, 2001). The aim of
this paper is precisely to test the sustainability of public finances over Period 5.
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Fig. 1. OECD area public revenue and expenditure (% of GDP), 1973–2016.
(OECD, 2017).
As far as the first two sub-periods of increases are concerned, in Table 1, we
present the value of public expenditure (% of GDP) in a sample of some OECD
countries for the years 1973, 1976, 1979 and 1982.
Table 1. Public expenditure (% of GDP) in twelve OECD member countries,
1973–1982 (OECD, 2017).
1973
1976
1979
1982
Change:
1982–1973
(pp)
Austria
41.6
47.9
49.5
51.5
9.9
Belgium
46.4
51.8
57.4
61.1
14.7
Canada
36.0
39.9
39.6
46.6
10.6
Denmark
39.9
45.6
49.8
56.9
17.0
Finland
32.2
40.2
40.3
42.9
10.7
Italy
35.0
37.7
39.7
46.0
11.0
Japan
25.0
29.6
32.3
33.6
8.6
Netherlands
43.3
49.5
51.9
57.0
13.7
Spain
24.6
27.6
32.1
38.9
14.3
Sweden
42.8
47.3
55.1
60.2
17.4
United Kingdom
39.5
44.9
40.2
43.4
3.9
United States
33.2
35.3
33.4
37.7
4.5
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In table 1, it can be seen that there were significant increases; in some of the
countries, there were increases of more than 10 percentage points (pp). These years
correspond to the disturbances related to high oil prices / oil shocks (BP, 2016).
The 1970s and the early 1980s are in fact considered in the relevant literature
as turbulent times characterised by economic adversity (Llewellyn, 1983; Black,
1985).
On the other hand, in the third sub-period (1991–1992), most of the OECD
countries that are considered in Table 1 displayed a more moderate increase in
public expenditure (% of GDP)
2
. However, Finland and Sweden were exceptions.
In these two countries, the public expenditure ratio rose from 47.9 and 56.5 of GDP
in 1990 to 61.7 and 66.9, respectively, in 1992. Such changes represent significant
increases in a relatively short time.
The beginning of the 1990s is in fact connoted, in the international context, with
economic depression in the so-called “economic twins”. Between 1990 and 1993,
Finland and Sweden’s GDP fell in real terms by 3.4 % and 1.5 % per year,
respectively (the author’s own calculations, using the data taken from the World
Bank, 2017). Some authors attribute this crisis to the financial deregulation that
occurred in the mid-1980s (Jonung, Kiander & Vartia, 2008; Chabert & Clavel, 2012)
Finally, the last most obvious increase in the OECD area public expenditure
was in 2008–2009 (see Figure 1). These were the years that marked the
intensification of the global financial crisis (European Commission, 2009) and to
avoid a more prolonged recession, one of the main remedies adopted was
expansionary measures (European Commission, 2008).
In Table 2, we present a new sample of public expenditure in the OECD
countries, where it can be seen that in this short period of time, there were
significant increases.
Table 2. Public expenditure (% of GDP) in twelve OECD member countries,
2007 and 2009 (OECD, 2017).
2007
2009
Change: 2007–2009 (pp)
Austria
49.5
54.5
5.0
Belgium
48.2
54.1
5.9
Finland
46.8
54.8
8.0
France
52.2
56.8
4.5
Germany
42.8
47.6
4.9
Greece
47.1
54.1
7.0
Ireland
35.8
47.1
11.3
Japan
34.6
40.2
5.7
Portugal
44.5
50.2
5.7
Spain
39.0
45.8
6.8
United Kingdom
41.5
48.6
7.1
United States
37.2
43.2
6.0
2
Conclusions obtained using the same data as those that were used to construct Table 1.
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It is also important to stress that for the entire period of 1973–2016, the OECD
area public revenue was always lower than expenditure (see again Figure 1).
Consequently, there was not a single positive balance in its public accounts during
the entire time horizon. However, it should be noted that the sub-period 2008–2012
stands out because of the higher deficits recorded as a percentage of GDP, as shown
in Figure 2.
Fig. 2. OECD area public deficit and public debt (% of GDP), 1973–2016
(OECD, 2017; AMECO, 2017; IMF, 2017).
Note 1: the OECD public deficits (% of GDP) were obtained from the difference between the public
revenue (% of GDP) and the public expenditure (% of GDP) presented in OECD (2017).
Note 2: the OECD public debt (% of GDP) was calculated by the author, using the data from
AMECO (2017) and IMF (2017). For more details, see Table A1 in the Appendix.
Consequently, this meant a sharp rise in the debt ratio in those same years
3
, a
period which covers the time of the global financial crisis and the euro area
sovereign debt crisis (one of the effects produced by the 2008 crisis).
In general, it is also possible to conclude that, despite several oscillations, the
OECD area public debt ratio showed a clear tendency to increase when one
considers the period as a whole. This trend meant an increase of forty-five
percentage points (pp) when comparing the value recorded in 1973 with the one
recorded in 2016.
3
As far as the revenue, expenditure and respective balances for the OECD area are concerned, the
data are already available (see OECD, 2017). However, in the case of the OECD area public debt,
we were not able to identify any available long time series. Thus, by using both official and
comparable data, we calculated an approximation for the OECD area debt ratio, based on the average
of the debts of the OECD countries. For more details regarding the time horizons and sources used,
see Table A1 in the Appendix.
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But does this evolution mean that the OECD area public finances were
unsustainable during the most recent period of the world economy, 1973–2016?
How can we obtain an answer to this question based on the data that we have just
briefly analysed?
1.2. Empirical Approach: Public Finances Sustainability
It is possible to present the concept of sustainable public finances – based on
the idea of the government’s solvency – from an algebraic standpoint. To do so, we
need to resort to the government’s budget constraint, which can be displayed in real
terms, as follows
4
:
(1)
where
5
– the primary expenditure (expenditure without interest) at time t;
– the revenue at time t;
– the real interest rate in period t paid to public debt holders;
and – the public debt in period t and in period t – 1.
The above equation can also be expressed as follows:
(2)
By making a set of algebraic transformations, it is possible to deduce the
government’s budget constraint for successive periods, resulting in the so-called
intertemporal budget constraint. Assuming that the real interest rate is stationary
(r), and making some changes, we will have:
(3)
Considering as the primary expenditure in period t plus the real interest
payments (with interest rates around r), we have:
(4)
(5)
From the last equation, and proceeding to a set of successive recursive
substitutions, we can obtain the designated intertemporal budget constraint:
4
For a more detailed algebraic development, see, for example, Pereira et al. (2005).
5
There are other factors not included in the equation, which may cause variations in the public debt.
For the sake of simplifying the algebraic process, these factors are usually considered to be zero
(see, for example, European Central Bank, 2011).
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∞
∞
(6)
A sustainable fiscal policy would therefore require the following condition:
∞
(7)
Thus, a sustainable fiscal policy should ensure that the value of the public debt
tends towards zero. In other words, the public debt cannot continue to grow
indefinitely at a higher rate than the real interest rate.
In addition, this means that the government must have future real primary
balances that have a value equal to the real debt stock in the initial period:
∞
(8)
There are some empirical procedures that make it possible to validate these
conditions. One of these procedures is associated with Trehan and Walsh (1991).
This procedure requires that the stationarity of public debt should be tested: if the
public debt is a stationary series in levels, I(0), or, in first differences, I(1), then the
condition given by equation (7) will be respected. The latter case is conceptually
equivalent to having a stationary public budget balance.
Thus, Trehan and Walsh (1991) considered that, in a context in which the
expected real rate of interest is constant, the stationarity of the public budget
balance, I(0), is a necessary and sufficient condition for a sustainable fiscal policy
when the public debt is I(1).
Another procedure is attributed to Hakkio and Rush (1991) and involves testing
public revenue and expenditure. Given that the intertemporal budget constraint can
also be written for the variables in first differences, we have:
∞
Δ
∞
(9)
Considering that = – , after applying the no-Ponzi scheme, we will
have the alternative equation (10):
∞
Δ (10)
Assuming that R and E are non-stationary variables, but that their first
differences are stationary, the left side of the equation will also have to be
stationary. Thus, the procedure proposed by Hakkio and Rush (1991) assumes that
GG and R are both I(1) and involves testing the cointegration between them. This
means testing the regression, = α + β + , with the following two options:
1) the null hypothesis, and , both integrated of order 1, I(1), are not
cointegrated, and 2) the alternative hypothesis, and , both integrated of order
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1, I(1), are cointegrated. Note that these authors considered it more appropriate to
use ratios for growing economies when testing the variables.
According to Hakkio and Rush (1991), it is a necessary condition for the
sustainability of fiscal policy that GG and R should be cointegrated. This is also
conceptually equivalent to having a stationary public budget balance.
In summary, according to the literature quoted here, the “necessary and
sufficient” conditions for sustainable public finances / sustainable fiscal policy
requires a stationary public debt (or a first difference stationary public debt) and
also a stationary public budget balance (or a cointegration between revenue and
expenditure). In this context, and following Quintos (1995), we can also talk about
“strong sustainability”.
2. EMPIRICAL RESULTS
In order to empirically test the sustainability of the OECD area public finances
in the period 1973–2016, the following variables were chosen (expressed in the
form of annual time series data): debt to GDP ratio (), public expenditure as a
percentage of GDP (), revenue as a percentage of GDP () and the public
budget balance as a percentage of GDP ().
Before performing the tests, it is customary to analyse the behaviour of the
variables graphically. Taking into account Figures 1 and 2 presented in Section 1.1,
we may suspect that with the most probable exclusion of the public debt (as a
percentage of GDP), there is the possibility of the remaining variables being
stationary in levels, I(0).
To confirm this perception, the most commonly used unit root and stationary
tests are chosen: the ADF (Dickey & Fuller, 1979) and the PP (Phillips & Perron,
1988), which take as their null hypothesis (ℎ) that there is a unit root. Also, the
KPSS test (Kwiatkowski et al., 1992) is selected, which takes as its null hypothesis
(ℎ) that there is stationarity.
The conclusions of tests for all the variables under consideration are presented
in Table 3.
The intersection of the results allows us to conclude that the debt ratio as a
percentage of GDP is stationary in first differences, I(1); only the KPSS test showed
a different result.
Table 3. Conclusions of the stationary tests
Variable
ADF
PP
KPSS
Overall conclusions
I(1)
I(1)
I(0)
I(1)
I(1)
I(0)
I(0)
I(0)
I(0)
I(0)
I(0)
I(0)
I(0)
I(0)
I(0)
I(0)
Note: for more details about these results, see Tables A2, A3 and A4 in the Appendix.
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On the other hand, the combination of the results of tests on the expenditure
and revenue ratio tells us that both variables are stationary in levels, I(0)
6
; in the
case of revenue, only the ADF tests showed another result. As far as the public
budget balance is concerned, all the tests present I(0) as their result.
According to the literature, these results allow us to conclude that the necessary
and sufficient condition for sustainability is met. This means that, when evaluating
the OECD economy as a whole, its public finances were strongly sustainable over
the 1973–2016 period.
In addition to the standard unit root tests, it is also possible to perform tests
allowing for a structural break
7
. These are modified ADF tests and present as their
null hypothesis (ℎ) the presence of a unit root with a possible break. The breakpoint
is determined by finding the minimum value for the DF statistic in the residuals.
However, there are different tests that can be performed, based on four alternative
models:
1) Non-trending data with intercept break (Model 0) – tests a random walk
against a stationary model with intercept break;
2) Trending data with intercept break (Model 1) – tests a random walk with
drift against a trend stationary model with intercept break;
3) Trending data with intercept break and trend break (Model 2) – tests a random
walk with drift against a trend stationary model with intercept and trend break;
4) Trending data with trend break (Model 3) – tests a random walk with drift
against a trend stationary model with trend break.
These tests can also be performed in a sequential manner (by starting with
Model 0 and stopping at the model that presents evidence of stationarity). The
conclusions of this process in relation to our variables are presented in Table 4.
Table 4. Conclusions of the unit root tests with breakpoints
Test
Model 0
Model 1
Model 2
Model 3
(break: 2007)
I(1)
(break: 2001)
I(0)
(break: 2009)
I(1)
(break: 2007)
I(0)
Note: For more details about these results, see Table A5 in the Appendix.
6
If revenues and expenditure are I(0), this means sustainability. For obvious reasons, it does not
make sense to perform cointegration tests.
7
Perron (1989) pointed out that, in certain cases, a trend-stationary process with a break could be
almost observationally equivalent to unit root processes. In such cases, the standard tests may lead
to the conclusion of the presence of a “false” unit root when there is, in fact, a trend-stationary
process with a structural break.
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Comparing these conclusions with the ones that were obtained with the
standard stationary tests, it can be seen that there is a divergence with respect to
which now appears to be I(1), i.e. with a different order of integration to ,
which, in turn, is now trend-stationary in the presence of a structural break. On the
other hand, as remains as I(0) and as I(1) in the presence of a structural break
in the year 2007, there is enough evidence to confirm that the necessary (stationary
public budget balance) and sufficient (stationary public debt ratio) conditions
continue to be met (despite the unfavourable results regarding revenue and
expenditure).
Therefore, in the presence of a structural break, we may also conclude that the
public finances of the OECD area were sustainable over the 1973–2016 period
8
.
CONCLUSION
The public finances in the OECD area as a whole were strongly sustainable
during the most recent period of the world economy, 1973–2016.
This empirical statement is based on the results obtained with different
stationarity tests. Firstly, the ADF, PP and KPSS tests showed a stationary public
budget balance as a percentage of GDP, a stationary public revenue and expenditure
as a percentage of GDP, and also a debt to GDP ratio that was stationary in first
differences. This set of results represents a “necessary and sufficient” condition for
“strong sustainability”. Secondly, the stationarity tests, which allow for a structural
break, also showed a stationary public budget balance as a percentage of GDP and
a debt to GDP ratio that was similarly stationary in first differences. This means
that the “necessary and sufficient” conditions for fiscal sustainability are also robust
in the presence of a structural break in data.
The conclusion on the strong sustainable public finances over the period 1973–
2016 is especially interesting if we take into account the problems in the world
economy that marked this period and seriously affected the OECD countries, such
as two oil shocks, and an international financial crisis already in the present century
(the most severe since the Great Depression).
We hope that this research may make an important contribution to the debate
regarding public finances in the world economy. The results presented do not,
however, signify that there has been individual sustainability in all of the OECD
member countries. Thus, it is our intention to perform additional tests (namely
stationarity tests) in the near future, in order to assess which members are
contributing to the fiscal sustainability of the OECD aggregate and which ones are
not.
8
The results of our paper point to sustainability when all the thirty-five member countries are as if
they were one body. As far as conclusions from other research studies are concerned, we draw
attention to Afonso and Jalles (2012). The authors tested the sustainability of public finances in a
sample of OECD member countries in the period 1970–2010. Their results showed an “absence of
sustainability – between government revenues and expenditures for most countries (except for
Austria, Canada, France, Germany, Japan, Netherlands, Sweden, and the UK)” and also the “non-
stationarity of the first-differenced debt series for most countries (with the exception of Australia,
Germany, Greece and the UK with the ADF and PP tests (...)”.
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ACKNOWLEDGMENT
The author would like to thank the two anonymous referees for their helpful comments and
recommendations.
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AUTHORS’ SHORT BIOGRAPHY
Ricardo Ferraz received his PhD degree in Economics and Social History
from the Lisbon School of Economics & Management, University of
Lisbon (ISEG), and subsequently completed a post-doctoral research
project at the Social and Economic History Research Unit (GHES) run by
the CSG consortium of ISEG. The author is a Visiting Professor at the
Coimbra Institute of Engineering (ISEC), a Researcher at GHES/CSG and
an Economics Advisor at the Portuguese Parliament.
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APPENDIX
Table A1. Public debt data sources
Country
Period
Source
Australia
1989–2016
IMF (2017)
Austria
1973–2016
AMECO (2017)
Belgium
1973–2016
Canada
1980–2016
IMF (2017)
Chile
1990–2016
Czech Republic
1995–2016
AMECO (2017)
Denmark
1973–2016
Estonia
1995–2016
Finland
1973–2016
France
1977–2016
Germany
1973–2016
Greece
1973–2016
Hungary
1995–2016
Iceland
1982–2016
IMF (2017)
Ireland
1973–2016
AMECO (2017)
Israel
2000–2016
IMF (2017)
Italy
1973–2016
AMECO (2017)
Japan
1973–2016
Korea
1990–2016
IMF (2017)
Latvia
1995–2016
AMECO (2017)
Luxembourg
1973–2016
Mexico
1996–2016
IMF (2017)
Netherlands
1975–2016
AMECO (2017)
New Zealand
1985–2016
IMF (2017)
Norway
1980–2016
Poland
1995–2016
AMECO (2017)
Portugal
1973–2016
Slovak Republic
1995–2016
Slovenia
1995–2016
Spain
1973–2016
Sweden
1973–2016
Switzerland
1973–2016
IMF (2017)
Turkey
2000–2016
AMECO (2017)
United Kingdom
1973–2016
United States
1973–2016
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Table A2. ADF Results
Test with constant and without trend
Variable
Lags
Test Statistic
Conclusion
1
–1.97
Non-stationary
1
–2.16
Non-stationary
1
–3.35**
Stationary
1
–4.01***
Stationary
Test with constant and trend
Variable
Lags
Test Statistic
Conclusion
1
–2.83
Non-stationary
1
–2.34
Non-stationary
Test with constant and without trend
Variable
Lags
Test Statistic
Conclusion
1
–3.73***
Stationary
2
–4.96***
Stationary
Source: Own calculations using Eviews (2017).
Note 1: *, ** and *** denote rejection of the null hypothesis (h0) of a unit root at the 10 %, 5 % and
1 % levels.
Note 2: the maximum lag was chosen using the rule provided by Schwert (1989). The actual lag
was obtained automatically by Eviews (2017) using the Schwarz Info Criterion (SIC).
Table A3. PP Results
Test with constant and without trend
Variable
Lags
Test Statistic
Conclusion
3
–1.36
Non-stationary
6
–2.90*
Stationary
0
–3.43**
Stationary
2
–3.12**
Stationary
Test with constant and trend
Variable
Lags
Test Statistic
Conclusion
3
–1.90
Non-stationary
Test with constant and without trend
Variable
Lags
Test Statistic
Conclusion
2
–3.34**
Stationary
Source: Own calculations using Eviews (2017).
Note 1: *, ** and *** denote rejection of the null hypothesis (h0) of a unit root at the 10 %, 5 % and
1 % levels.
Note 2: the actual lag was obtained automatically by Eviews (2017) using the New-West automatic
selection of bandwidth.
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Table A4. KPSS Results
Test with constant and without trend
Variable
Lags
Test Statistic
Conclusion
5
0.64*
Stationary
5
0.56**
Stationary
4
0.41*
Stationary
3
0.08
Stationary
Source: Own calculations using Eviews (2017).
Note 1: *, ** and *** denote rejection of the null hypothesis (h0) of stationarity at the 10 %, 5 %
and 1 % levels.
Note 2: the actual lag was obtained automatically by Eviews (2017) using the New-West automatic
selection of bandwidth.
Table A5. Unit root test with a breakpoint
Non-trending data with intercept break
Variable
Lags
Break
Test Statistic
Conclusion
1
2007
–4.13
Non-stationary
0
1979
–3.22
Non-stationary
1
2007
–4.10
Non-stationary
1
2007
–4.50**
Stationary
Trending data with intercept break
Variable
Lags
Break
Test Statistic
Conclusion
1
1993
–4.35
Non-stationary
4
2001
–5.55***
Stationary
1
1995
–4.53
Non-stationary
Trending data with intercept and trend break
Variable
Lags
Break
Test Statistic
Conclusion
1
1994
–3.93
Non-stationary
1
1995
–4.36
Non-stationary
Trending data with trend break
Variable
Lags
Break
Test Statistic
Conclusion
1
2007
–3.07
Non-stationary
1
1985
–3.56
Non-stationary
Non-trending data with intercept break
Variable
Lags
Break
Test Statistic
Conclusion
1
2007
–4.27*
Stationary
0
2009
–6.31***
Stationary
Source: Own calculations using Eviews (2017).
Note 1: *, ** and *** denote rejection of the null hypothesis (h0) of a unit root at the 10 %, 5 % and
1 % levels.
Note 2: the maximum lag was chosen using the rule provided by Schwert (1989). The actual lag
was obtained automatically by Eviews (2016) based on the Schwarz Info Criterion (SIC).
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