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Fiscal Sustainability in Central and Latin America Countries: Evidence from a Panel Cointegration Approach

Author

Listed:
  • Ehrhart Christophe

    (LiRIS, University of Rennes 2)

  • Matthieu Llorca

    (LEDi, Université of Bourgogne Franche-comté)

Abstract

This empirical study aims at assessing sustainability of fiscal policies in twenty Central and Latin American countries over the period 1990-2012. We employ the second generation panel unit root test proposed by Pesaran (2007) to take into account for cross-section dependence and it is found that the fiscal variables are integrated of order one. Using the panel cointegration tests suggested by Westerlund (2007), econometric results show that there is a long-run relationship between government revenue and spending. The estimate of the panel cointegrating regression in an error correction model indicates that the budget deficit turns out to be weakly sustainable.

Suggested Citation

  • Ehrhart Christophe & Matthieu Llorca, 2017. "Fiscal Sustainability in Central and Latin America Countries: Evidence from a Panel Cointegration Approach," Economics Bulletin, AccessEcon, vol. 37(4), pages 2292-2300.
    • Handle: RePEc:ebl:ecbull:eb-17-00794
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    References listed on IDEAS

    as
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    2. Jeetendra Khadan & Amrita Deonarine, 2019. "Testing the Inter-temporal Budget Constraint for Small States," Economics Bulletin, AccessEcon, vol. 39(2), pages 1176-1183.

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    More about this item

    Keywords

    public debt sustainability; panel data unit-root and co-integration tests; Central and Latin American countries;
    All these keywords.

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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