IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/62815.html
   My bibliography  Save this paper

Assessing Fiscal Sustainability for SAARC and IMT-GT Countries

Author

Listed:
  • Syed, Munawar-Shah
  • Mariani, Abdul-Majid
  • Syed, Hussain-Shah

Abstract

This study examines the fiscal sustainability of SAARC and Asian Growth-Triangle countries using Fisher and IPS tests of panel unit root and Pedroni test of panel cointegration. The tests are applied to the relationships, in terms of GDP ratios, between, i) the debt and primary surplus, and ii) government expenditure and revenues. Both models show consistent results suggesting that fiscal policy for the low-income countries is sustainable whereas it may not be sustainable for the high-income countries. This also indicates that the fiscal policy can be sustainable (non-sustainable) even for the debt above (below) 60 percent of the GDP.

Suggested Citation

  • Syed, Munawar-Shah & Mariani, Abdul-Majid & Syed, Hussain-Shah, 2014. "Assessing Fiscal Sustainability for SAARC and IMT-GT Countries," MPRA Paper 62815, University Library of Munich, Germany, revised 2014.
    • Handle: RePEc:pra:mprapa:62815
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/62815/1/MPRA_paper_62783.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. António Afonso & Christophe Rault, 2010. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 731-755, January.
    2. Raghbendra Jha, 2010. "Fiscal Policies and Challenges in South Asia," ASARC Working Papers 2010-01, The Australian National University, Australia South Asia Research Centre.
    3. Martin Wagner & Jaroslava Hlouskova, 2010. "The Performance of Panel Cointegration Methods: Results from a Large Scale Simulation Study," Econometric Reviews, Taylor & Francis Journals, vol. 29(2), pages 182-223, April.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-819, September.
    6. Martin Wagner, 2008. "On PPP, unit roots and panels," Empirical Economics, Springer, vol. 35(2), pages 229-249, September.
    7. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    8. Martin Feldstein, 2009. "Rethinking the Role of Fiscal Policy," American Economic Review, American Economic Association, vol. 99(2), pages 556-559, May.
    9. Mendoza, Enrique G. & Ostry, Jonathan D., 2008. "International evidence on fiscal solvency: Is fiscal policy "responsible"?," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1081-1093, September.
    10. Ersi Athanassiou, 2009. "Fiscal policy and the recession: The case of Greece," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 44(6), pages 364-372, November.
    11. Smith, Gregor W & Zin, Stanley E, 1991. "Persistent Deficits and the Market Value of Government Debt," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(1), pages 31-44, Jan.-Marc.
    12. Jorg Breitung, 2005. "A Parametric approach to the Estimation of Cointegration Vectors in Panel Data," Econometric Reviews, Taylor & Francis Journals, vol. 24(2), pages 151-173.
    13. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(3), pages 597-625, June.
    14. Anindya Banerjee, 1999. "Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 607-629, November.
    15. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    16. Alan J. Auerbach, 2009. "Implementing the New Fiscal Policy Activism," American Economic Review, American Economic Association, vol. 99(2), pages 543-549, May.
    17. Haug, Alfred A, 1995. "Has Federal Budget Deficit Policy Changed in Recent Years?," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 104-118, January.
    18. Olumuyiwa Adedeji & John Thornton, 2010. "Fiscal sustainability in a panel of Asian countries," Applied Economics Letters, Taylor & Francis Journals, vol. 17(7), pages 711-715.
    19. Henning Bohn, 2011. "The Economic Consequences of Rising U.S. Government Debt: Privileges at Risk," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(3), pages 282-302, September.
    20. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-44, March.
    21. Stilianos Fountas & Jyh-Lin Wu, 1996. "Are the Greek budget deficits too large?," Applied Economics Letters, Taylor & Francis Journals, vol. 3(7), pages 487-490.
    22. Silika Prohl & Joakim Westerlund, 2009. "Using Panel Data to Test for Fiscal Sustainability within the European Union," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(2), pages 246-269, June.
    23. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 653-670, November.
    24. Trehan, Bharat & Walsh, Carl E, 1991. "Testing Intertemporal Budget Constraints: Theory and Applications to U.S. Federal Budget and Current Account Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 206-223, May.
    25. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    26. Jaroslava Hlouskova & Martin Wagner, 2006. "The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study," Econometric Reviews, Taylor & Francis Journals, vol. 25(1), pages 85-116.
    27. Joakim Westerlund, 2005. "New Simple Tests for Panel Cointegration," Econometric Reviews, Taylor & Francis Journals, vol. 24(3), pages 297-316.
    28. Karl Aiginger, 2009. "The Current Economic Crisis: Causes, Cures and Consequences," WIFO Working Papers 341, WIFO.
    29. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-417, October.
    30. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    31. Trehan, Bharat & Walsh, Carl E., 1988. "Common trends, the government's budget constraint, and revenue smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 425-444.
    32. Coakley, Jerry & Fuertes, Ana Maria, 1997. "New panel unit root tests of PPP," Economics Letters, Elsevier, vol. 57(1), pages 17-22, November.
    33. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    34. Rolf Larsson & Johan Lyhagen & Mickael Lothgren, 2001. "Likelihood-based cointegration tests in heterogeneous panels," Econometrics Journal, Royal Economic Society, vol. 4(1), pages 1-41.
    35. repec:bla:obuest:v:61:y:1999:i:0:p:607-29 is not listed on IDEAS
    36. Michael Bergman, 2001. "Testing government solvency and the No Ponzi Game condition," Applied Economics Letters, Taylor & Francis Journals, vol. 8(1), pages 27-29.
    37. repec:bla:obuest:v:61:y:1999:i:0:p:653-70 is not listed on IDEAS
    38. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    39. Henning Bohn, 2005. "The Sustainability of Fiscal Policy in the United States," CESifo Working Paper Series 1446, CESifo.
    40. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(610), S), pages 163-178, Spring.
    2. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 163-178, Spring.
    3. Paul Alagidede & George Tweneboah, 2015. "On the Sustainability and Synchronization of Fiscal Policy in Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 52(2), pages 213-240, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. António Afonso & Christophe Rault, 2010. "What do we really know about fiscal sustainability in the EU? A panel data diagnostic," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 731-755, January.
    2. Breitung, Jörg & Pesaran, Mohammad Hashem, 2005. "Unit roots and cointegration in panels," Discussion Paper Series 1: Economic Studies 2005,42, Deutsche Bundesbank.
    3. Betty C. Daniel & Christos Shiamptanis, 2008. "Fiscal policy in the European Monetary Union," International Finance Discussion Papers 961, Board of Governors of the Federal Reserve System (U.S.).
    4. Daniel, Betty C. & Shiamptanis, Christos, 2013. "Pushing the limit? Fiscal policy in the European Monetary Union," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2307-2321.
    5. Paul Alagidede & George Tweneboah, 2015. "On the Sustainability and Synchronization of Fiscal Policy in Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 52(2), pages 213-240, November.
    6. In Choi, 2012. "Panel Cointegration," Working Papers 1208, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    7. António Afonso & João Tovar Jalles, 2012. "Revisiting fiscal sustainability: panel cointegration and structural breaks in OECD countries," Working Papers Department of Economics 2012/29, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    8. Fantazzini , Dean, 2009. "Econometric Analysis of Financial Data in Risk Management," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 14(2), pages 100-127.
    9. Wagner, Martin, 2008. "The carbon Kuznets curve: A cloudy picture emitted by bad econometrics?," Resource and Energy Economics, Elsevier, vol. 30(3), pages 388-408, August.
    10. Cho, Dooyeon & Lee, Kyung-woo, 2022. "Population aging and fiscal sustainability: Nonlinear evidence from Europe," Journal of International Money and Finance, Elsevier, vol. 126(C).
    11. Martin Wagner & Jaroslava Hlouskova, 2010. "The Performance of Panel Cointegration Methods: Results from a Large Scale Simulation Study," Econometric Reviews, Taylor & Francis Journals, vol. 29(2), pages 182-223, April.
    12. Piotr Krajewski & Michał Mackiewicz & Agata Szymańska, 2016. "Fiscal Sustainability in Central and Eastern European Countries - A Post-Crisis Assessment," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(2), pages 175-188.
    13. Gharehgozli, Orkideh, 2021. "An empirical comparison between a regression framework and the Synthetic Control Method," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 70-81.
    14. Akram, Vaseem & Rath, Badri Narayan, 2020. "What do we know about fiscal sustainability across Indian states?," Economic Modelling, Elsevier, vol. 87(C), pages 307-321.
    15. Gogas, Periklis & Plakandaras, Vasilios & Papadimitriou, Theophilos, 2014. "Public debt and private consumption in OECD countries," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 1-7.
    16. Kamrul Hassan & Ruhul Salim, 2011. "The linkage between relative population growth and purchasing power parity," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 10(2), pages 154-169, July.
    17. Hasanov, Fakhri & Bulut, Cihan & Suleymanov, Elchin, 2017. "Review of energy-growth nexus: A panel analysis for ten Eurasian oil exporting countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 73(C), pages 369-386.
    18. Paniagua, Jordi & Sapena, Juan & Tamarit, Cecilio, 2017. "Fiscal sustainability in EMU countries: A continued fiscal commitment?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 85-97.
    19. R. Golinelli & I. Mammi & A. Musolesi, 2018. "Parameter heterogeneity, persistence and cross-sectional dependence: new insights on fiscal policy reaction functions for the Euro area," Working Papers wp1120, Dipartimento Scienze Economiche, Universita' di Bologna.
    20. Juan Carlos Cuestas & Luis A. Gil-Alana & Laura Sauci, 2020. "Public finances in the EU-27: Are they sustainable?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(1), pages 181-204, February.

    More about this item

    Keywords

    Debt; Fiscal Policy; Sustainability; Panel Unit Roots; Panel Cointegration;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:62815. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.