Disturbing the fiscal theory of the price level: Can it fit the eu-15?



The results of the estimation of equation (30), reported in Table 5, show that the price
level does not seem to have a statistically significant relation with the government
revenues. This is true for the pooled regression, fixed effects and random effects
versions, even though now the fixed effects model is not statistically better when
compared against the other two versions. Furthermore, such a relation, even if
significant at the 10 per cent level, is nevertheless positive, and not negative, as one
would expect if the price level adjusted upwards after a decrease in public revenues.
Therefore, one could hardly decide, with this evidence, for the validation of the FTPL in
the EU-15 countries.

Table 5 - Estimation of equation (30), dependent variable: average annual change
______________________
of the price deflator______________________

Variable
(coefficient)

Pooled
regression

Fixed effects
____
model

Random
effects model

Constant (λi)

0,650
(3,361)

-0,704
(-3,412)

ωP (Pit-1)

0,892
(41,741)

0,850
(33,411)

0,878
(39,186)

Or (R⅛-1)

0,175*
(1,713)

0,187*

(1,800)

0,179*

(1,774)

R''

0,8029

0,8008

0,8029

F α test

0,683
(14,439)

Hausman b test

5.601 **
(2)

DW_____

1,789

1,754

1,762

The t statistics are in parentheses.

a - The degrees of freedom for the F statistic are in parentheses; the statistic tests the fixed
effects model against the pooled regression model, where the autonomous term is the same for
all countries, which is the null hypothesis.

b - The statistic has a Chi-square distribution (the degrees of freedom are in parentheses); the
Hausman statistic tests the fixed effects model against the random effects, which is here the null
hypothesis.

* - Statistically significant at the 10 per cent level.

** - Statistically significant (only) at the 10 per cent level, the null hypothesis is rejected
(random effects model), that is, one rejects the hypothesis that the autonomous terms in each
country are not correlated with the independent explanatory variables (in this case the random
effects model does not produce unbiased and consistent estimators).

29



More intriguing information

1. The name is absent
2. Personal Income Tax Elasticity in Turkey: 1975-2005
3. THE CHANGING STRUCTURE OF AGRICULTURE
4. The name is absent
5. Migrant Business Networks and FDI
6. Wirtschaftslage und Reformprozesse in Estland, Lettland, und Litauen: Bericht 2001
7. Financial Development and Sectoral Output Growth in 19th Century Germany
8. The name is absent
9. The name is absent
10. Evidence-Based Professional Development of Science Teachers in Two Countries
11. Expectations, money, and the forecasting of inflation
12. The name is absent
13. Ruptures in the probability scale. Calculation of ruptures’ values
14. Behaviour-based Knowledge Systems: An Epigenetic Path from Behaviour to Knowledge
15. Locke's theory of perception
16. THE AUTONOMOUS SYSTEMS LABORATORY
17. European Integration: Some stylised facts
18. Higher education funding reforms in England: the distributional effects and the shifting balance of costs
19. What Lessons for Economic Development Can We Draw from the Champagne Fairs?
20. Picture recognition in animals and humans