Sustainability of Latin American fiscal deficits: a panel data approach

Research paper by Jacobo Campo-Robledo, Luis F. Melo-Velandia

Indexed on: 15 Jan '15Published on: 15 Jan '15Published in: Empirical economics


This paper evaluates the fiscal sustainability hypothesis for eight Latin American countries for the period 1960–2009: Argentina, Chile, Colombia, Ecuador, Panama, Peru, Paraguay and Uruguay. Using second-generation cointegration panel data models, we test whether government revenues and primary expenditures are sustainable in the long run. This methodology allows for cross-sectional dependence among countries and is appropriate under the existence of potential structural breaks. We found empirical evidence of fiscal sustainability for these Latin American countries but only in a weak sense.