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Economic Growth and Government Debt: Evidence from the Young Democracies of Latin America

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  • Manoel Bittencourt

    ()

    (Department of Economics, University of Pretoria)

Abstract

We investigate in this paper what are the main determinants of government and external debt in Latin America. Our sample includes nine Latin American countries that re-democratised in the last 30 years or so, and the data cover the period between 1970 and 2007. The results, based on principal component and dynamic panel data analyses (we use the Pooled OLS, Fixed Effects, Fixed Effects with Instrumental Variables, DIF-GMM and SYS-GMM estimators), robustly suggest that economic growth, presumably via the automatic stabilisers, has had the ability of reducing debt in the region. Other important candidates suggested by the literature do not present clear-cut estimates on debt. Essentially, this suggests that the tax-smoothing model still holds in Latin America, which in times of debt crisis is very suggestive of the importance of fast economic activity in keeping debt under control.

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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201203.

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Length: 25 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:pre:wpaper:201203
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Web page: http://www.up.ac.za/economics

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Keywords: Growth; Debt; Latin America;

Find related papers by JEL classification:

  • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
  • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean
  • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
  • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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  10. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1301-1338.
  11. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  12. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
  13. Manoel Bittencourt, 2011. "Is Copacabana Still the ‘Little Princess of the Sea’?," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(1), pages 11-16, 03.
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Cited by:

  1. Swastika, Purti & Dewandaru, Ginanjar & Masih, Mansur, 2013. "The Impact of Debt on Economic Growth: A Case Study of Indonesia," MPRA Paper 58837, University Library of Munich, Germany.

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