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Fiscal Sustainability in Central and Latin America Countries: Evidence from a Panel Cointegration Approach

Ehrhart Christophe () and Matthieu Llorca ()
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Ehrhart Christophe: LiRIS, University of Rennes 2
Matthieu Llorca: LEDi, Université of Bourgogne Franche-comté

Economics Bulletin, 2017, vol. 37, issue 4, 2292-2300

Abstract: This empirical study aims at assessing sustainability of fiscal policies in twenty Central and Latin American countries over the period 1990-2012. We employ the second generation panel unit root test proposed by Pesaran (2007) to take into account for cross-section dependence and it is found that the fiscal variables are integrated of order one. Using the panel cointegration tests suggested by Westerlund (2007), econometric results show that there is a long-run relationship between government revenue and spending. The estimate of the panel cointegrating regression in an error correction model indicates that the budget deficit turns out to be weakly sustainable.

Keywords: public debt sustainability; panel data unit-root and co-integration tests; Central and Latin American countries (search for similar items in EconPapers)
JEL-codes: H5 H6 (search for similar items in EconPapers)
Date: 2017-10-26
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