Searching for nonlinear effects and fiscal sustainability in G-7 countries

This article investigates the possibility of nonlinearities and sustainability in the fiscal policy of G-7 countries. A large number of studies using unit root tests have been conducted on fiscal sustainability and the effects of nonlinearities. However, a majority of these have given scant attention to the combination of structural change and the effect of the threshold. We improve Sollis's (2004) test and investigate nonlinear effects and fiscal sustainability. Empirical evidence supports the fact that G-7 countries excluding Japan have nonlinear effects and fiscal sustainability.