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Fiscal convergence and sustainability in the European Union
Vladimir Arčabić* 
Vladimir Arčabić
Affiliation: University of Zagreb, Faculty of Economics and Business, Department of Macroeconomics and Economic Development, Zagreb, Croatia
 0000-0003-4173-8637
Correspondence
varcabic@efzg.hr
Article | Year: 2018 | Pages: 353 - 380 | Volume: 42 | Issue: 4 Received: June 1, 2018 | Accepted: October 10, 2018 | Published online: December 14, 2018
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FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
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(a)
Government Debt convergence results
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log(t)
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All
Countries
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γ
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-0.253*
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t-stat
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-22.13
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Club classification
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log(t)
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Club1
[19]
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Club2
[9]
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γ
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-0.00900
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0.560
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t-stat
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-0.686
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6.100
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(b)
Government Revenues convergence results
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log(t)
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All
Countries
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γ
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-0.729*
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t-stat
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-33.34
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Club classification
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log(t)
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Club1
[19]
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Club2
[5]
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Club3
[2]
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Group4
[2]
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γ
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0.00700
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0.792
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0.114
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-3.378*
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t-stat
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0.527
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22.75
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0.395
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-2.779
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(c)
Government Expenditures convergence results
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log(t)
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All
Countries
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γ
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-1.075*
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t-stat
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-10.68
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Club classification
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log(t)
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Club1
[5]
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Club2
[11]
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Club3
[6]
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Club4
[3]
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Club5
[2]
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γ
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0.284
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0.264
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0.113
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0.851
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-0.125
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t-stat
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1.016
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16.05
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8.963
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9.936
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-0.154
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Final classification
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log(t)
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Club1
[5]
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Club2
[11]
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Club3
[9]
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Club4
[2]
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γ
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0.284
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0.264
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0.169
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-0.125
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t-stat
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1.016
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16.05
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14.93
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-0.154
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Note: The table presents γ coefficient from log t regression together with t-statistics. * Marks a rejection of convergence at 5% level. Numbers in brackets are number of countries in the club. Club classification is a result of the initial clustering algorithm. Final classification is a result after club merging. Final classification is presented only when club merging is significant. Countries that form different clubs are presented in figure 3.
Note: Convergence clubs are in squares, non-convergent groups are in circles.
2a: Percent of countries
converging to the average gov. debt (%)
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ADF
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Lee & Strazicich
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Enders & Lee
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EU
[28]
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3.57
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3.57
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7.14
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Club
1 [19]
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0.00
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5.26
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5.26
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Club
2 [9]
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22.22
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0.00
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0.00
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2b: Percent of
countries converging to the average gov. revenues (%)
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ADF
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Lee & Strazicich
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Enders & Lee
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EU
[28]
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35.71
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85.71
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46.43
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Club
1 [19]
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42.11
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94.74
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57.89
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Club
2 [5]
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40.00
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100.00
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40.00
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Club
3 [2]
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0.00
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100.00
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100.00
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2c: Percent of
countries converging to the average gov. expenditures (%)
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ADF
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Lee & Strazicich
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Enders & Lee
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EU
[28]
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39.29
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78.57
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46.43
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Club
1 [5]
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40.00
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100.00
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40.00
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Club
2 [11]
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54.55
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90.91
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81.81
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Club
3 [9]
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33.33
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77.78
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55.56
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Club
4 [2]
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100.00
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100.00
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100.00
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Models
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Model 1
Benchmark
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Model 2
Club 1
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Model 3
Club 2
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Model 4
EU-15
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Model 5
EU-13
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Model 6
debt ≥ 90%
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Model 7
debt < 90%
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Variables
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Surplus
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Surplus
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Surplus
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Surplus
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Surplus
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Surplus
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Surplus
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Surplus (lagged) (
)
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0.502***
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0.415***
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0.390***
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0.547***
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0.308**
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0.573**
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0.526***
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(0.08)
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(0.09)
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(0.10)
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(0.06)
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(0.11)
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(0.21)
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(0.10)
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Debt (
)
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-0.018
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-0.009
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-0.043
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-0.029
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0.040
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0.036
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-0.057*
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(0.01)
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(0.01)
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(0.12)
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(0.02)
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(0.03)
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(0.08)
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(0.03)
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Output Gap (
)
|
0.286***
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0.413***
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0.435***
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0.394***
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0.388**
|
0.297**
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0.305***
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(0.05)
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(0.07)
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(0.13)
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(0.04)
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(0.15)
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(0.09)
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(0.07)
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Constant
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0.776
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0.122
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2.030
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1.879
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-2.351*
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-4.298
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2.459*
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(0.76)
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(1.06)
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(5.63)
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(1.23)
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(1.15)
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(8.69)
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(1.44)
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Observations
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1,708
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1,159
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549
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915
|
793
|
281
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1,427
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Number of countries
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28
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19
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9
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15
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13
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9
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26
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F-test
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0
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3.40e-06
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0.00139
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0
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2.43e-05
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0.00352
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0
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# of instruments
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23
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14
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11
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14
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11
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11
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20
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Hansen test
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0.222
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0.100
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0.371
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0.175
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0.102
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0.506
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0.166
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Models
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Model 1
Benchmark
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Model 2
Club 1
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Model 3
Club 2
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Model 4
EU-15
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Model 5
EU-13
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Model 6
debt ≥ 90%
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Model 7
debt < 90%
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|
Variables
|
Surplus
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Surplus
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Surplus
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Surplus
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Surplus
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Surplus
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Surplus
|
|
Surplus (lagged) (
)
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0.512***
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0.515***
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0.491***
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0.637***
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0.336***
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0.248**
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0.611***
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(0.06)
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(0.07)
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(0.12)
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(0.04)
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(0.07)
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(0.10)
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(0.09)
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Debt (
)
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0.006
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0.004
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0.025
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0.003
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0.029**
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0.031**
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-0.009
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|
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(0.01)
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(0.01)
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(0.02)
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(0.00)
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(0.01)
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(0.01)
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(0.01)
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|
Output Gap (
)
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0.176***
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0.172***
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0.209**
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0.226***
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0.197***
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0.213
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0.133***
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|
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(0.04)
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(0.04)
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(0.09)
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(0.03)
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(0.05)
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(0.12)
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(0.04)
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Constant
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-0.614*
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-0.713
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-0.998
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-0.327
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-1.831***
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-3.951**
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0.168
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|
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(0.36)
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(0.42)
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(0.71)
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(0.35)
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(0.40)
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(1.48)
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(0.63)
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Observations
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1,708
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1,159
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549
|
915
|
793
|
281
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1,427
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Number of countries
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0.304
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0.298
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0.335
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0.457
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0.173
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0.123
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0.384
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F-test
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28
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19
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9
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15
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13
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9
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26
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# of instruments
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0.512***
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0.515***
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0.491***
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0.637***
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0.336***
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0.248**
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0.611***
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Hansen test
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(0.06)
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(0.07)
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(0.12)
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(0.04)
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(0.07)
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(0.10)
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(0.09)
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Note: Standard errors in parentheses, ***, **, and * mark statistical significance at 1%, 5%, and 10% level. Model 1 is the benchmark model. Models 2 and 3 include countries from endogenous debt convergence clubs 1 and 2, respectively. Models 4 and 5 include EU-15 and EU-13 countries, and models 6 and 7 include subsamples with government debt ≥ 90% and debt < 90% of GDP, respectively.
|
Country
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Revenues
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Expenditures
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Debt
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Surplus
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Mean
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St. dev.
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Mean
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St. dev.
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Mean
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St. dev.
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Mean
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St. dev.
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Belgium
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0.498
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0.014
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0.519
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0.029
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102.371
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6.191
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1.489
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2.662
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Bulgaria
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0.375
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0.032
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0.378
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0.035
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25.430
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12.762
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0.809
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3.995
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Czech R.
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0.397
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0.021
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0.427
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0.030
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34.493
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6.377
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-1.570
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2.538
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Denmark
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0.542
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0.012
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0.537
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0.025
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41.284
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6.727
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2.350
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2.937
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Germany
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0.439
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0.011
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0.453
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0.017
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69.791
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6.443
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0.853
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1.749
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Estonia
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0.380
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0.027
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0.376
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0.035
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6.770
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2.386
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0.605
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2.605
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Ireland
|
0.331
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0.031
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0.374
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0.095
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63.992
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35.900
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-3.019
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8.925
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Greece
|
0.427
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0.042
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0.501
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0.052
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135.084
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31.814
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-2.996
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4.643
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Spain
|
0.380
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0.016
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0.417
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0.035
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64.440
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24.433
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-1.729
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4.398
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France
|
0.506
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0.016
|
0.544
|
0.023
|
78.400
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13.788
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-1.601
|
1.526
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Croatia
|
0.433
|
0.030
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0.478
|
0.030
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56.491
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19.248
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-1.880
|
2.281
|
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Italy
|
0.453
|
0.019
|
0.485
|
0.019
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115.085
|
12.457
|
1.345
|
1.277
|
|
Cyprus
|
0.365
|
0.030
|
0.395
|
0.055
|
73.230
|
21.307
|
-0.192
|
5.510
|
|
Latvia
|
0.352
|
0.022
|
0.374
|
0.036
|
26.770
|
14.433
|
-1.088
|
3.003
|
|
Lithuania
|
0.341
|
0.013
|
0.367
|
0.039
|
28.502
|
10.293
|
-1.275
|
3.675
|
|
Luxembourg
|
0.434
|
0.013
|
0.418
|
0.026
|
14.941
|
7.215
|
1.360
|
1.821
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|
Hungary
|
0.444
|
0.021
|
0.490
|
0.023
|
69.585
|
8.796
|
-0.745
|
3.255
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Malta
|
0.384
|
0.020
|
0.416
|
0.023
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66.048
|
4.001
|
0.266
|
2.870
|
|
Netherlands
|
0.429
|
0.009
|
0.446
|
0.021
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56.298
|
8.245
|
-0.165
|
2.086
|
|
Austria
|
0.489
|
0.012
|
0.513
|
0.019
|
76.310
|
6.738
|
0.363
|
1.796
|
|
Poland
|
0.395
|
0.013
|
0.435
|
0.018
|
48.860
|
5.134
|
-1.724
|
1.608
|
|
Portugal
|
0.415
|
0.021
|
0.469
|
0.035
|
92.343
|
30.325
|
-1.906
|
3.499
|
|
Romania
|
0.335
|
0.016
|
0.367
|
0.033
|
25.756
|
10.096
|
-1.550
|
3.267
|
|
Slovenia
|
0.434
|
0.010
|
0.472
|
0.048
|
44.276
|
22.349
|
-1.759
|
4.888
|
|
Slovakia
|
0.373
|
0.024
|
0.417
|
0.039
|
43.263
|
8.989
|
-1.969
|
2.157
|
|
Finland
|
0.531
|
0.013
|
0.520
|
0.040
|
46.337
|
10.241
|
1.891
|
3.288
|
|
Sweden
|
0.520
|
0.019
|
0.515
|
0.016
|
42.539
|
4.814
|
1.568
|
1.730
|
|
UK
|
0.378
|
0.012
|
0.420
|
0.036
|
60.967
|
22.826
|
-2.558
|
2.478
|
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