Fiscal Sustainability in Latin America and the Caribbean: A Cluster Analysis Based on Compliance with Fiscal Rules
Eduardo Lima Campos et al.
Abstract
Several studies have investigated the fiscal sustainability of Latin American and Caribbean (LAC) countries. However, country-specific analyses fail to account for common factors and cross-dependence, while a single-panel approach is inadequate due to the region’s economic diversity. Building on this, recent studies have proposed grouping LAC countries based on income, financial and trade integration, or export categories. Nevertheless, as neither of these criteria are primary determinants of a country’s fiscal situation, some groups were too heterogeneous with regard to fiscal issues, which led to weak findings. The present work employs an econometric cluster analysis to group LAC countries for the purposes of examining fiscal sustainability. This technique allows us to account for indicators of compliance with fiscal rules, which are supposed to be closely related to the proposed investigation. The groups we obtained led to stronger and more conclusive findings on the fiscal sustainability of LAC countries than previous studies, as supported by hypothesis tests. Our approach also made it possible to take the most advantage of the discriminative power of these indicators, as well as to identify which of them played an essential role in distinguishing between sustainable and unsustainable clusters of countries—information that can be of great value to policymakers. JEL Classification Codes: H30; H60; E50
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.