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Economic Growth and Government Debt: Evidence from the Young Democracies of Latin America

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  • Manoel Bittencourt

    ()
    (Department of Economics, University of Pretoria)

Abstract

We investigate in this paper what are the main determinants of government and external debt in Latin America. Our sample includes nine Latin American countries that re-democratised in the last 30 years or so, and the data cover the period between 1970 and 2007. The results, based on principal component and dynamic panel data analyses (we use the Pooled OLS, Fixed Effects, Fixed Effects with Instrumental Variables, DIF-GMM and SYS-GMM estimators), robustly suggest that economic growth, presumably via the automatic stabilisers, has had the ability of reducing debt in the region. Other important candidates suggested by the literature do not present clear-cut estimates on debt. Essentially, this suggests that the tax-smoothing model still holds in Latin America, which in times of debt crisis is very suggestive of the importance of fast economic activity in keeping debt under control.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201203.

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Length: 25 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:pre:wpaper:201203

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Keywords: Growth; Debt; Latin America;

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  1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  2. Stein, Ernesto & Hommes, Rudolf & Hausmann, Ricardo & Alesina, Alberto, 1999. "Budget Institutions and Fiscal Performance in Latin America," Scholarly Articles 4553021, Harvard University Department of Economics.
  3. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  4. Rogoff, Kenneth & Sibert, Anne, 1988. "Elections and Macroeconomic Policy Cycles," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 1-16, January.
  5. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
  6. Daron Acemoglu & Georgy Egorov & Konstantin Sonin, 2011. "A Political Theory of Populism," NBER Working Papers 17306, National Bureau of Economic Research, Inc.
  7. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  8. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," Economics Working Papers 0047, Institute for Advanced Study, School of Social Science.
  9. Woo, Jaejoon, 2003. "Economic, political, and institutional determinants of public deficits," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 387-426, March.
  10. Easterly William R., 2001. "Growth Implosions and Debt Explosions: Do Growth Slowdowns Cause Public Debt Crises?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-26, February.
  11. Alberto Alesina & Guido Tabellini, 2005. "Why is fiscal policy often procyclical?," Levine's Bibliography 784828000000000465, UCLA Department of Economics.
  12. Manoel Bittencourt, 2011. "Is Copacabana Still the ‘Little Princess of the Sea’?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 12(1), pages 11-16, 03.
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