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Fiscal sustainability among Brazilian states: a Markov-switching, unsupervised learning approach

Author

Listed:
  • Castro, Hedmus
  • Alexandre, Michel
  • Costa Filho, João Ricardo

Abstract

The purpose of this paper is to identify patterns of fiscal sustainability among Brazilian states, considering regime changes. To this end, we employ two distinct approaches: the Markov-switching autoregressive (MSAR) model and k-means clustering. Our dataset comprises quarterly data on the primary balance of Brazilian states. Our results show that Brazilian states transition between two fiscal regimes characterized by positive or negative fiscal results. Furthermore, Brazilian states can be grouped based on their shared characteristics. Finally, we demonstrate important correlations between fiscal sustainability variables, such as performance in a given fiscal regime and transition probabilities. These results will contribute to a more accurate assessment of the fiscal dynamics of Brazilian states.

Suggested Citation

  • Castro, Hedmus & Alexandre, Michel & Costa Filho, João Ricardo, 2026. "Fiscal sustainability among Brazilian states: a Markov-switching, unsupervised learning approach," MPRA Paper 129276, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:129276
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    References listed on IDEAS

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    1. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August.
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    3. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    4. Hall, Stephen G & Psaradakis, Zacharias & Sola, Martin, 1997. "Cointegration and Changes in Regime: The Japanese Consumption Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(2), pages 151-168, March-Apr.
    5. Carlos Andrés Zapata-Quimbayo & Raúl-Alberto Chamorro-Narváez, 2024. "Fiscal regimes and debt sustainability in Colombia," Journal of Applied Economics, Taylor & Francis Journals, vol. 27(1), pages 2336706-233, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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