The Sustainability of Fiscal Adjustment Process : A Quantitative Approach With an Application to Tunisia

This study is a contribution to the literature concerning the sustainability of fiscal deficits in emerging economies. A novelty in this article is an attempt to check the sustainability of fiscal adjustment process monitored by fiscal authorities. Running accounting model for the fiscal disequilibrium in Tunisia over the period 1976-2010 shows sustainable thresholds of fiscal deficits and helps to quantify the related required fiscal adjustment for each year. Using bivariate cointegration test and a dynamic Error Correction Model to check the short and long run relationships between primary deficits and sustainable thresholds, this study found evidence to authorities? ability and willingness to adjust: if the primary fiscal deficit has increased above its long-run ratio, the primary fiscal deficit will decrease in the following period to restore the long run equilibrium with a high significant speed to adjust. As a guide to possible future policy actions, the realized fiscal buffers until 2010 help to withstand ?Arab Spring? Revolution crisis which started in 2011 and may provide additional support for actual expansionary fiscal policy and allow more room for manoeuvre to ensure political transition to democracy. Nowadays, Tunisia is faced with diminished policy space and after the forthcoming elections, authorities? ability and willingness to adjust could be the strong link in the upturn in public finance disequilibrium.