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Sustainability of Budget Deficits and Public Debt in Lebanon: A Stationarity and Co-Integration Analysis

Listed author(s):
  • Neaime Simon

    (Department of Economics, Institute of Financial Economics, American University of Beirut)

This paper presents a thorough empirical analysis of fiscal developments in Lebanon over the past three decades. After an evaluation of major fiscal and monetary developments, the paper uses the Present Value Constraint framework to analyze whether debt and deficits are sustainable. Unit root and co-integration tests reveal that public debt in Lebanon is not sustainable. It is also shown that Lebanon could be heading towards a debt and exchange rate crisis, which could degenerate into a banking crisis similar to the one observed in Argentina, unless timely fiscal adjustment measures are introduced in the near future.

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File URL: https://www.degruyter.com/view/j/rmeef.2007.2.1/rmeef.2007.2.1.1019/rmeef.2007.2.1.1019.xml?format=INT
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Article provided by De Gruyter in its journal Review of Middle East Economics and Finance.

Volume (Year): 2 (2004)
Issue (Month): 1 (April)
Pages: 42-60

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Handle: RePEc:bpj:rmeecf:v:2:y:2004:i:1:n:3
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  1. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
  2. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-819, September.
  3. Stelios Makrydakis, 1999. "Consumption-smoothing and the excessiveness of Greece's current account deficits," Empirical Economics, Springer, vol. 24(2), pages 183-209.
  4. Haug, Alfred A, 1991. "Cointegration and Government Borrowing Constraints: Evidence for the United States," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 97-101, January.
  5. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
  6. Trehan, Bharat & Walsh, Carl E, 1991. "Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 206-223, May.
  7. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
  8. Tanner, Evan & Liu, Peter, 1994. "Is the Budget Deficit "Too Large"?: Some Further Evidence," Economic Inquiry, Western Economic Association International, vol. 32(3), pages 511-518, July.
  9. James Payne, 1997. "International evidence on the sustainability of budget deficits," Applied Economics Letters, Taylor & Francis Journals, vol. 4(12), pages 775-779.
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