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Is fiscal policy sustainable in emerging market economies?

Author

Listed:
  • Ghatak, Subrata

    (Kingston University London)

  • Sanchez-Fung, Jose R.

    (NUBS University of Nottingham, Ningbo, China)

Abstract

This paper analyses a no-Ponzi-game condition (NPG) for the government's surplus in Peru, Philippines, South Africa, Thailand, and Venezuela using annual data and cointegration methods. With the marginal exception of South Africa, the NPG cannot be found to hold in the countries investigated. An alternative, novel, methodology advanced by Bohn (1995) is also employed. Specifically, the study looks into (1) the relationship between the government's primary surplus-GDP ratio and the debt-GDP ratio, and (2) a regression of the change in the debt-GDP ratio on its level, with both (1) and (2) controlling for temporary government spending and business cycle factors. The results from (2) reveal that there is mean reversion in the debt-GDP ratio, i.e. fiscal policy is sustainable, in South Africa and Thailand. Remarkably, the conclusion that fiscal policy is inter-temporally viable in South Africa is the most robust to arise from the study.

Suggested Citation

  • Ghatak, Subrata & Sanchez-Fung, Jose R., 2003. "Is fiscal policy sustainable in emerging market economies?," Economics Discussion Papers 2003-4, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2003_004
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    File URL: http://eprints.kingston.ac.uk/6686/
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    More about this item

    Keywords

    No-Ponzi-game condition; government budget deficit/debt; fiscal sustainability; emerging markets.;
    All these keywords.

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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