Fiscal sustainability in Central and Latin American countries: evidence from a panel cointegration approach

Christophe Ehrhart and Matthieu Llorca ()
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Christophe Ehrhart: LIRIS - Laboratoire interdisciplinaire de recherche en innovations sociétales - UR2 - Université de Rennes 2
Matthieu Llorca: LEDi - Laboratoire d'Economie de Dijon - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique

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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.

Date: 2017
Note: View the original document on HAL open archive server: https://hal.science/hal-04704604v1
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Published in Economics Bulletin, 2017, 37 (4), pp.2292-2300

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04704604

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