Sovereign debt sustainability: some evidence for the US and Europe

This paper examines the sustainability of sovereign debt and its components by applying fractional integration methods to annual data starting in 1831 for the UK and the US, in 1862 for Italy and in 1881 for France and Germany, and ending in all cases in 2022. The results suggest in all cases I(d) behaviour of the differential between interest payments and primary deficits, but with different speeds of adjustment towards the long-run equilibrium. By contrast, since 1950 all estimates of the fractional differencing parameter are all within the same interval (0.5 < d < 1), implying slower dynamic adjustment. This sustainability finding is confirmed by further tests based on the budget constraint as a whole, which, especially in the post-WWII period, suggest relatively low persistence.