Europe And The United States Deficit Sustainability

The sovereign debt crisis in Europe and the United States have caught the world’sattention on their fiscal condition and prosperity. It seems that both face huge deficits,high debt level, economic downturn and population aging issues, etc.. the realsituation is actually different among countries. This article aims at exploring the fiscalsustainability in Europe and the United States. First, outline the fiscal policies andcurrent condition in the two economies in view of fiscal revenue and outlay; second,analyze the direct and deep reason of high deficit level comparatively and summarizethe similarities and differences; thirdly, apply index analysis and empirical testingmethods in estimating the fiscal deficit sustainability: based on the empirical model ofQuintos (1995), apply cointegration test to the fiscal revenue and expenditure seriesfrom1999Q1to2011Q3. Then according to the recent measures and policies taken byEurope and US, further assess the possibility of fiscal sustainability. Finally come tothe conclusion, shortage and improvement direction.