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Nonlinear Alternatives to Unit Root Tests and Public Finances Sustainability: Some Evidence from Latin American and Caribbean Countries

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  • Georgios Chortareas
  • George Kapetanios
  • Merih Uctum

Abstract

We analyse the sustainability of government debt for Latin American and Caribbean countries employing unit‐root tests with nonlinear alternative hypotheses and examine the robustness of our results against those from unit‐root tests with breaks and threshold nonlinearities. We show that, in general support for sustainability substantially improves when nonlinear mean reversion is taken into account. We also find that the results obtained from applying various tests with nonlinear alternatives, although broadly consistent, are not identical. This suggests that reliance on a single unit‐root test for assessing fiscal policy sustainability may be misleading.

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  • Georgios Chortareas & George Kapetanios & Merih Uctum, 2008. "Nonlinear Alternatives to Unit Root Tests and Public Finances Sustainability: Some Evidence from Latin American and Caribbean Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(5), pages 645-663, October.
    • Handle: RePEc:bla:obuest:v:70:y:2008:i:5:p:645-663
    DOI: 10.1111/j.1468-0084.2008.00511.x
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    6. Gabriella Deborah Legrenzi & Costas Milas, 2011. "Debt Sustainability and Financial Crises: Evidence from the GIIPS," CESifo Working Paper Series 3594, CESifo.
    7. Alessandro Piergallini, 2019. "Nonlinear policy behavior, multiple equilibria and debt-deflation attractors," Journal of Evolutionary Economics, Springer, vol. 29(2), pages 563-580, April.
    8. Abderrahim Chibi & Sidi Mohamed Chekouri & Mohamed Benbouziane, 2015. "Assessing Fiscal Sustainability in Algeria: a Nonlinear Approach," Working Papers 962, Economic Research Forum, revised Oct 2015.
    9. Vicente Esteve & María A. Prats, 2021. "Financial bubbles and sustainability of public debt: The case of Spain," Working Papers 2111, Department of Applied Economics II, Universidad de Valencia.
    10. Piergallini, Alessandro & Postigliola, Michele, 2013. "Non-linear budgetary policies: Evidence from 150 years of Italian public finance," Economics Letters, Elsevier, vol. 121(3), pages 495-498.
    11. Tilak Abeysinghe & Ananda Jayawickrama, 2013. "A segmented trend model to assess fiscal sustainability: The US experience 1929–2009," Empirical Economics, Springer, vol. 44(3), pages 1129-1141, June.
    12. Thanh Dat Nguyen & Sandy Suardi & Chew Lian Chua, 2017. "The Behavior Of U.S. Public Debt And Deficits During The Global Financial Crisis," Contemporary Economic Policy, Western Economic Association International, vol. 35(1), pages 201-215, January.
    13. Yoon, Gawon, 2012. "Explosive U.S. budget deficit," Economic Modelling, Elsevier, vol. 29(4), pages 1076-1080.
    14. J. Ferris & Stanley Winer & Bernard Grofman, 2012. "Do departures from democratic accountability compromise the stability of public finances? Keynesianism, central banking, and minority governments in the Canadian system of party government, 1867–2009," Constitutional Political Economy, Springer, vol. 23(3), pages 213-243, September.
    15. Gabriella Deborah Legrenzi & Costas Milas, 2010. "Spend-and-Tax Adjustments and the Sustainability of the Government's Intertemporal Budget Constraint," CESifo Working Paper Series 2926, CESifo.
    16. Piergallini, Alessandro, 2012. "Non-Linear Fiscal Regimes and Interest Rate Policy," MPRA Paper 42671, University Library of Munich, Germany.
    17. Abderrahim Chibi & Sidi Mohamed Chekouri & Mohamed Benbouziane, 2019. "The dynamics of fiscal policy in Algeria: sustainability and structural change," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-27, December.
    18. Jean-Claude Kouakou Brou & Jamal Bouoiyour, 2023. "South Africa's Public Debt: Long-term Dependence, Structural Breaks and Multifractality [La dette publique de l'Afrique du Sud : dépendance à long terme, ruptures structurelles et multifractalité]," Post-Print hal-04327950, HAL.
    19. Cascio, Iolanda Lo, 2015. "A wavelet analysis of US fiscal sustainability," Economic Modelling, Elsevier, vol. 51(C), pages 33-37.
    20. Canofari, Paolo & Marini, Giancarlo & Piergallini, Alessandro, 2020. "Financial Crisis and Sustainability of US Fiscal Deficit: Indicators or Tests?," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 192-204.
    21. Yoon, Gawon, 2012. "War and peace: Explosive U.S. public debt, 1791–2009," Economics Letters, Elsevier, vol. 115(1), pages 1-3.
    22. Gabriella Legrenzi & Costas Milas, 2012. "Long-Run Debt Sustainability and Threshold Adjustments: Non-Linear Empirical Evidence from the GIIPS," Economics Bulletin, AccessEcon, vol. 32(3), pages 2586-2593.

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