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

  • Manoel Bittencourt

    ()

    (Department of Economics, University of Pretoria)

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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  1. Alberto Alesina & Filipe Campante & Guido Tabellini, . "Why is Fiscal Policy Often Procyclical?," Working Paper 248206, Harvard University OpenScholar.
  2. Daron Acemoglu & Georgy Egorov & Konstantin Sonin, 2011. "A Political Theory of Populism," NBER Working Papers 17306, National Bureau of Economic Research, Inc.
  3. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  4. 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.
  5. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
  6. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2003. "Opportunistic Political Cycles: Test in a Young Democracy Setting," Working Papers w0024, Center for Economic and Financial Research (CEFIR).
  7. Woo, Jaejoon, 2003. "Economic, political, and institutional determinants of public deficits," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 387-426, March.
  8. Easterly William R., 2001. "Growth Implosions and Debt Explosions: Do Growth Slowdowns Cause Public Debt Crises?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-26, February.
  9. Ricardo Hausmann & Alberto Alesina & Rudolf Hommes & Ernesto H. Stein, 1998. "Budget Institutions and Fiscal Performance in Latin America," Research Department Publications 4160, Inter-American Development Bank, Research Department.
  10. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  11. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  12. 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.
  13. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
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