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Is Fiscal Policy Sustainable in Developing Economies?
Author(s) -
Ghatak Subrata,
SánchezFung José R.
Publication year - 2007
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2006.00358.x
Subject(s) - economics , cointegration , fiscal sustainability , fiscal policy , debt , macroeconomics , latin americans , budget constraint , sustainability , government debt , constraint (computer aided design) , government (linguistics) , monetary economics , deficit spending , developing country , econometrics , economic growth , microeconomics , mechanical engineering , ecology , linguistics , philosophy , biology , engineering
This paper investigates fiscal policy sustainability in Peru, the Philippines, South Africa, Thailand, and Venezuela using competing methodologies. Standard unit roots and cointegration analyses do not endorse the validity of the intertemporal budget constraint. In contrast, to varying degrees across countries, alternative testing employing a fiscal policy reaction function indicates sustainability defined as surplus adjustments in response to higher debt‐to‐income ratios. Corresponding debt‐dynamics analyses show that corrective measures were put in place to revert non‐sustainable trends in government debt. However, ancillary variables in the debt modeling produce statistically weak evidence of procyclical fiscal behavior in the Latin American countries.