Reassessing the Sustainability of Public Finances in Poland: Evidence from a Multicointegration Approach

This paper extends the analysis carried out in Tronzano (2017) reassessing the sustainability of Poland’s public finances in a stochastic environment. A single-step multicointegration test detects the existence of first-order cointegration between revenues and expenditures flows. However, these fiscal variables are not multicointegrated, thus violating a crucial condition for fiscal sustainability in a stochastic environment. Overall, this empirical evidence supports the policy implications outlined in Tronzano (2017) (further fiscal consolidation and a more balanced fiscal-mix between revenues and expenditures). A further implication is that the above guidelines should be implemented introducing a systematic policy reaction to contingent disequilibria in public debt.