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Is Fiscal Policy Sustainable in Developing Economies?

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  • Ghatak, Subrata
  • Sánchez-Fung, José R.

Abstract

This paper investigates fiscal policy sustainability in Peru, the Philippines, South Africa, Thailand, and Venezuela using competing methodologies. Standard unit roots and cointegration analyses do not endorse the validity of the intertemporal budget constraint. In contrast, to varying degree across-countries, alternative testing employing a fiscal policy reaction function indicates sustainability defined as surplus adjustments in response to higher debt to income ratios. Corresponding debt-dynamics analyses show that corrective measures were put in place to revert non-sustainable trends in government debt. However, ancillary variables in the debt modeling produce statistically weak evidence of procyclical fiscal behavior in the Latin American countries.

Suggested Citation

  • Ghatak, Subrata & Sánchez-Fung, José R., 2006. "Is Fiscal Policy Sustainable in Developing Economies?," Discussion Papers 384, VATT Institute for Economic Research.
    • Handle: RePEc:fer:dpaper:384
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    3. Masato Shizume, 2007. "Sustainability of Public Debt: Evidence from Pre-World War II Japan," Working Papers 7013, Economic History Society.
    4. Samia Omrane Belguith & Foued Badr Gabsi, 2019. "Public Debt Sustainability in Tunisia: Empirical Evidence Estimating Time-Varying Parameters," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(2), pages 550-560, June.
    5. Gozde Es POLAT & Onur POLAT, 2021. "Fiscal sustainability analysis in EU countries: a dynamic macro-panel approach," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 12, pages 219-241, June.
    6. Lusine Lusinyan & John Thornton, 2007. "The Revenue‐Expenditure Nexus: Historical Evidence For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 75(3), pages 496-507, September.
    7. Paret, Anne-Charlotte, 2017. "Debt sustainability in emerging market countries: Some policy guidelines from a fan-chart approach," Economic Modelling, Elsevier, vol. 63(C), pages 26-45.
    8. Scandizzo, Pasquale & Pagliacci, Carolina, 2010. "Foreign Reserve Management in an Oil Economy: Macroeconomic Risk as a Real Option," MPRA Paper 106539, University Library of Munich, Germany.
    9. Joshua Aizenman & Gurnain Kaur Pasricha, 2013. "Special Issue. Guest Editor: Zhihao Yu," Review of Development Economics, Wiley Blackwell, vol. 17(3), pages 397-413, August.
    10. Rudi Kurniawan, 2015. "Does Indonesia Pursue Sustainable Fiscal Policy?," Working Papers in Economics and Development Studies (WoPEDS) 201504, Department of Economics, Padjadjaran University, revised Nov 2015.
    11. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(610), S), pages 163-178, Spring.

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