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Is Fiscal Policy Sustainable in Developing Economies?

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  • Subrata Ghatak
  • José R. Sánchez-Fung

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 degrees 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. Copyright � 2006 The Authors; Journal compilation � 2006 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 11 (2007)
Issue (Month): 3 (08)
Pages: 518-530

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Handle: RePEc:bla:rdevec:v:11:y:2007:i:3:p:518-530

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Cited by:
  1. Masato Shizume, 2007. "Sustainability of Public Debt: Evidence from Pre-World War II Japan," Discussion Paper Series 201, Research Institute for Economics & Business Administration, Kobe University.

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