This paper investigates the sustainability of the fiscal budgeting process for Egypt, for both stochastic and non-stochastic environments. Note that persistent deficits and the accumulation of debt do not necessarily imply that the debt is unmanageable, and hence, that fiscal processes are unsustainable. It is possible for a government to change the historical pattern it has been following so that it will not continue to borrow and run a âPonziâ scheme in the future. This implies that the standard cointegration approach to testing whether a government adheres to its intertemporal budget constraint does not provide sufficient criteria for determining whether the fiscal process is truly sustainable. Consequently, we also use a more encompassing set of criteria under more realistic assumptions for determining whether the fiscal process in Egypt exhibits a sustainable budgeting process. These criteria for sustainability are based on the multicointegration approach. Therefore, both cointegration and multicointegration methodologies were used to evaluate these processes. It was found that the fiscal budgeting process in Egypt is sustainable in neither a stochastic nor a non-stochastic environment. Furthermore, the earlier and recent nationalisation of foreign trade resulted in an increase in deficits-GDP ratio. Adopting an austerity budget in 1967 and paying an additional cost of living allowance to government employees since 1975 were the only two policy regime changes which reduced the deficit per GDP.View full textDownload full textKeywordsfiscal sustainability, multicointegrationRelated var addthis_config = { ui_cobrand: "Taylor & Francis Online", services_compact: "citeulike,netvibes,twitter,technorati,delicious,linkedin,facebook,stumbleupon,digg,google,more", pubid: "ra-4dff56cd6bb1830b" }; Add to shortlist Link Permalink http://dx.doi.org/10.1080/13629380903445666
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