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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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  • Subrata Ghatak & José R. Sánchez-Fung, 2007. "Is Fiscal Policy Sustainable in Developing Economies?," Review of Development Economics, Wiley Blackwell, vol. 11(3), pages 518-530, August.
  • Handle: RePEc:bla:rdevec:v:11:y:2007:i:3:p:518-530
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    Cited by:

    1. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 163-178, Spring.
    2. 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.
    3. Paret, Anne-Charlotte, 2017. "Debt sustainability in emerging market countries: Some policy guidelines from a fan-chart approach," Economic Modelling, Elsevier, vol. 63(C), pages 26-45.
    4. Joshua Aizenman & Gurnain Kaur Pasricha, 2013. "Special Issue. Guest Editor: Zhihao Yu," Review of Development Economics, Wiley Blackwell, vol. 17(3), pages 397-413, August.
    5. repec:agr:journl:v:xxiv:y:2017:i:1(610):p:163-178 is not listed on IDEAS

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