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Fiscal policy sustainability: test of intertemporal borrowing constraints

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Hüseyin Kalyoncu

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Abstract

This paper examines sustainability of the fiscal stances of South Korea, Mexico, the Philippines, South Africa and Turkey. Using the usual intertemporal borrowing constraint, we have tested for a long-run relationship between revenue and expenditure plus interest payments. In our empirical analysis of the sustainability of fiscal stances, cointegration approaches have been used. Empirical results suggest that there exists a unique long-run or equilibrium relationship among variables for South Korea and Turkey. The cointegration results suggest that the Turkish and South Korean fiscal stances satisfy the weak sustainability condition. In the case of Mexico, the Philippines and South Africa cointegration results suggest that in these countries the fiscal stance is not sustainable (and violates their intertemporal budget constraints) in the long run.

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Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

Volume (Year): 12 (2005)
Issue (Month): 15 (December)
Pages: 957-962
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Handle: RePEc:taf:apeclt:v:12:y:2005:i:15:p:957-962

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Uctum, Merih & Wickens, Michael R, 1997. "Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis," CEPR Discussion Papers 1612, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  3. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August. [Downloadable!] (restricted)
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  4. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Oxford University Press, vol. 29(3), pages 429-45, July.
  5. Bharat Trehan & Carl E. Walsh, 1988. "Testing intertemporal budget constraints: theory and applications to U. S. federal budget and current account deficits," Working Papers in Applied Economic Theory 88-03, Federal Reserve Bank of San Francisco.
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  6. Artis, Michael J & Marcellino, Massimiliano, 1998. "Fiscal Solvency and Fiscal Forecasting in Europe," CEPR Discussion Papers 1836, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Trehan, Bharat & Walsh, Carl E., 1988. "Common trends, the government's budget constraint, and revenue smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 425-444. [Downloadable!] (restricted)
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  1. Kalyoncu, Huseyin & Yucel, Fatih, 2005. "An analytical approach on defense expenditure and economic growth: the case of Turkey and Greece," MPRA Paper 4262, University Library of Munich, Germany, revised 2006. [Downloadable!]
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  2. Vasco Gabriel & Pataaree Sangduan, 2009. "Assessing Fiscal Sustainability Subject to Policy Changes: a Markov Switching Cointegration Approach," Department of Economics Discussion Papers 0309, Department of Economics, University of Surrey. [Downloadable!]
  3. Andrea, SILVESTRINI, 2007. "Testing fiscal sustainability in Poland : a Bayesian analysis of cointegration," Discussion Papers (ECON - Département des Sciences Economiques) 2007040, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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