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Public finance sustainability plays a central role in the stabilization efforts in Latin America. The emphasis on fiscal policy in these countries goes back to the debt crisis of the 1980s, which was associated with large fiscal imbalances. We analyze the sustainability of government debt for a sample of Latin American countries, employing unit root tests that incorporate nonlinear alternative hypotheses. These tests capture the potential thresholds or corridor behavior that international agreements or markets impose on emerging economies' public finances. We show that support for sustainability substantially improves when the possibility of nonlinear mean-reversion is taken into account.
The efficiency, effectiveness, and transparency of public financial management in Latin America is critical for the supervision of public resources, fiscal stability, and sustainable economic development. In recent years, the countries of Latin America have embraced reforms in public financial management and have made many important advances; however, many challenges remain. This book brings together the knowledge and experiences of IMF and IDB staff and representatives from 16 governments in the region to document these reforms, and examines the experiences and lessons learned. It is a valuable resource for those looking at issues in public financial management.
Fiscal sustainability remains a paramount challenge for small economies with high debt and greater vulnerability to climate change. This paper applies the model-based sustainability test for fiscal policy in a panel of 16 Caribbean countries during the period 1980–2018. The results indicate that the coefficient on lagged government debt is positive and statistically significant, implying that fiscal policy in the Caribbean takes corrective actions to counteract an increase in the debt-to-GDP ratio. Nonlinear estimations, however, show that the quadratic debt parameter is negative, which indicates that fiscal policy response is not adequate to ensure sustainability at higher levels of debt. We also find that the fiscal stance tends to be countercyclical on average during the sample period. These empirical results confirm that maintaining prudent fiscal policies and implementing growth-enhancing structural reforms are necessary to build fiscal buffers and ensure debt sustainability with high probability even when negative shocks occur over the long term.
This paper reviews the role of fiscal policy in a number of stabilization programs in Latin America since the early 1980s. The paper highlights the importance of sustainable fiscal adjustment in stabilization efforts, and discusses the main issues that arise in this context. By reviewing the Latin American experience, it is argued that responsibility for failed stabilization attempts can be traced to four main factors: inconsistent policy mixes; excessive reliance on temporary factors of improvement in the fiscal accounts; failure to implement fundamental fiscal reforms; and lack of complementary structural reforms.
Covers the period from 1970 to 1985.
This book presents some basic theoretical concepts of public finance with a particular emphasis on its impact poverty reduction. Eight case studies from Latin America and Africa illustrate how these concepts are applied in practice and the implementation issues that emerge.
How does the South African government react to changes in its debt position? In investigating the question, this paper estimates fiscal reaction functions using various methods (OLS, VAR, TAR, GMM, State-Space modelling and VECM). The paper finds that since 1946 the South African government has ran a sustainable fiscal policy, by reducing the primary deficit or increasing the surplus in response to rising debt. Looking ahead, the paper considers the use of fiscal reaction functions to forecast the debt/GDP ratio and gauging the likelihood of achieving policy goals with the aid of probabilistic simulations and fan charts.