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On the Sustainability and Synchronization of Fiscal Policy in Latin America

Paul Alagidede () and George Tweneboah ()

Latin American Journal of Economics-formerly Cuadernos de Economía, 2015, vol. 52, issue 2, 213-240

Abstract: This paper explores the sustainability of fiscal policy for a panel of Latin American countries over the period 1990–2012. We extend the literature on the causal relationship between government expenditure (GX) and revenue (GR) in the short run and long run. Our results show a significant long-run relationship between GX and GR, suggesting that fiscal policies are consistent with their intertemporal budget constraints. We establish bidirectional causality between revenue and expenditure in the long run, indicating a contribution from both GX and GR in establishing steady state equilibrium following substantial deviations. Our data also uphold the fiscal synchronization thesis.

Keywords: fiscal sustainability; Latin America; panel cointegration; fiscal synchronization; intertemporal budget constraints (search for similar items in EconPapers)
JEL-codes: C23 E62 H62 H63 (search for similar items in EconPapers)
Date: 2015
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Latin American Journal of Economics-formerly Cuadernos de Economía is currently edited by Raimundo Soto

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Handle: RePEc:ioe:cuadec:v:52:y:2015:i:2:p:213-240