Sustainability of Latin American Fiscal Deficits: A Panel Data Approach
This paper evaluates the fiscal sustainability hypothesis for eight Latin Americancountries for the period 1960 - 2009: Argentina, Chile, Colombia, Ecuador, Panama, Peru, Paraguayand Uruguay. Using second generation cointegration panel data models, we test whether governmentrevenues and primary expenditures are sustainable in the long run. This methodology allowsfor cross-sectional dependence among countries and is appropriate under the existence of potentialstructural breaks. We found empirical evidence of sustainability of the primary deficit for theseLatin American countries but only in a weak sense.
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