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How Sustainable are Latin American Fiscal Deficits: A Panel Data Approach

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  • Jacobo Campo Robledo

    ()

  • Luis Fernando Melo Velandia

    ()

Abstract

This paper evaluates the fiscal sustainability hypothesis for eight Latin American countries, Argentina, Chile, Colombia, Ecuador, Panama, Peru, Paraguay and Uruguay, during the period 1960 - 2009. Using second generation cointegration panel data models, we test whether Government revenues and primary expenditures are sustainable in the long-run. This methodology allows for cross-sectional dependence among countries and is also appropriated under the existence of potential structural breaks. We found empirical evidence of sustainability of the primary deficit for these Latin American countries but only in a weak sense.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 679.

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Length: 16
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:bdr:borrec:679

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Keywords: Fiscal Sustainability; Panel Unit Root tests; Panel Cointegration tests; Structural Change. Classification JEL:C22; C23; H62.;

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  1. Suzanne McCoskey & Chihwa Kao, 1998. "A residual-based test of the null of cointegration in panel data," Econometric Reviews, Taylor & Francis Journals, vol. 17(1), pages 57-84.
  2. Ignacio Lozano & Enrique Cabrera, 2010. "Una nota sobre la sostenibilidad fiscal y el nexo entre los ingresos y gastos del Gobierno colombiano," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 207-238, abril-jun.
  3. António Afonso & Christophe Rault, 2007. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Working Papers hal-00322091, HAL.
  4. Antonio Afonso, 2004. "Fiscal Sustainability: the Unpleasant European Case," Money Macro and Finance (MMF) Research Group Conference 2004 57, Money Macro and Finance Research Group.
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