Fiscal sustainability in a panel of Asian countries

Abstract

Panel cointegration techniques indicate that government revenue (REV) and expenditure (EXP) in a panel of five Asian economies for the period 1974 to 2001 were nonstationary and cointegrated series. However, the cointegration coefficient was significantly less than unity, indicating ‘weak’ fiscal sustainability and the likelihood that policy measures would be needed to put the public finances on a more sustainable basis.

Notes

¹Afonso (2005) provides a comprehensive survey of the relevant empirical literature.

The views expressed in this article are those of the authors and should not be attributed to the International Monetary Fund.

²The Monte Carlo simulations presented in Kao and Chiang (2001) have shown that the DOLS estimator outperforms both the OLS and fully modified least squares estimators for both homogeneous and heterogeneous panels.

³On the other hand, the coverage of the fiscal data also excludes contingent fiscal liabilities that, if realized, will put strain on the public finances.

⁴See, for example, International Monetary Fund (2005a, b).