Is fiscal policy sustainable in emerging market economies?

Subrata Ghatak () and Jose R. Sanchez-Fung ()
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Subrata Ghatak: Kingston University London
Jose R. Sanchez-Fung: NUBS University of Nottingham, Ningbo, China

No 2003-4, Economics Discussion Papers from School of Economics, Kingston University London

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.

Keywords: No-Ponzi-game condition; government budget deficit/debt; fiscal sustainability; emerging markets. (search for similar items in EconPapers)
JEL-codes: H60 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2003-03-01
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Persistent link: https://EconPapers.repec.org/RePEc:ris:kngedp:2003_004

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