An Empirical Evaluation of Greece's Public Debt Sustainability

Bachelor Thesis from the year 2011 in the subject Economics - Finance, grade: 10.0, Maastricht University, language: English, abstract: This paper deals primarily with the question whether Greece's public finances were on a sustainable path from a theoretical perspective. For this evaluation, two empirical approaches from the sustainability literature are employed: co-integration and fiscal reaction. Both methods are applied to data from 1980 until 2010 and indeed, they yield no evidence that Greece's fiscal policy was on a sustainable path in that period. In addition, the recent start of a very strong fiscal adjustment process for Greece is identified. The success and macroeconomic implications of this fiscal adjustment are discussed based on a survey of the academic debate and from the aspect of European integration.