Absence of Seigniorage and Government Solvency before the EMU: Can Spain Meet Both Conditions?

Abstract

In this paper the sustainability of the Spanish fiscal policy is examined. The aim of the paper is to test whether the government's budget is balanced intertemporally in the context of a growing economy, where the variables are normalised by real GDP and population. The conclusions are, first, that the Spanish fiscal policy is not sustainable without seigniorage and second, that the Government may run into problems of marketing its debt in the future if the current fiscal policy continues without holding the restriction imposed on the debt/GDP ratio.