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

  • Jacobo Campo Robledo

    ()

  • Luis Fernando Melo Velandia

    ()

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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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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  1. Antonio Afonso & Christophe Rault, 2008. "What do we Really Know about Fiscal Sustainability in the EU? A Panel Data Diagnostic," Post-Print halshs-00363683, HAL.
  2. Christophe Ehrhart & Matthieu Llorca, 2008. "The sustainability of fiscal policy: evidence from a panel of six South-Mediterranean countries," Post-Print halshs-00338063, HAL.
  3. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
  4. Chihwa Kao & Suzanne McCoskey, 1997. "A Residual-Based Test Of The Null Of Cointegration In Panel Data," Econometrics 9711002, EconWPA.
  5. Ignacio Lozano & Enrique Cabrera, . "Una nota sobre la sostenibilidad fiscal y el nexo entre los ingresos y gastos del Gobierno Colombiano," Borradores de Economia 579, Banco de la Republica de Colombia.
  6. Silika Prohl & Friedrich G. Schneider, 2006. "Sustainability of Public Debt and Budget Deficit: Panel cointegration analysis for the European Union Member countries," Economics working papers 2006-10, Department of Economics, Johannes Kepler University Linz, Austria.
  7. 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.
  8. Joakim Westerlund & Silika Prohl, 2010. "Panel cointegration tests of the sustainability hypothesis in rich OECD countries," Applied Economics, Taylor & Francis Journals, vol. 42(11), pages 1355-1364.
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