Fiscal Sustainability in Emerging Markets: Panel Unit Root Approach with Smooth Structural Shifts and Common Factors

Abstract

We test the fiscal sustainability in emerging markets (EMs) for a period of nearly half a century (1970-2022) using the panel unit root approach with common factors and Fourier breaks through the government budget balance. We also provide an opportunity for comparison by applying a method that considers sharp-type breaks under common factors. The outcomes of the sharp-type break test report that the budget structure in EMs is unsustainable at both the panel and cross-sectional levels. On the contrary, evidence from the Fourier break test confirms fiscal sustainability at the panel level and for six countries (Indonesia, Peru, the Philippines, South Africa, Thailand, and Türkiye). The paper advocates that in samples such as EMs with many breaks, sharp-break approaches are inadequate to explain the data structure. These differing analysis findings highlight that Fourier break approaches are strong candidates to fill this gap in the empirical literature. Lastly, the paper offers policy recommendations based on the findings generated by the new approach.

Keywords

• Fiscal Sustainability
• Emerging Markets
• Fourier Shifts
• Common Factors
• Panel Unit Root

Gelişmekte Olan Piyasalarda Mali Sürdürülebilirlik: Yumuşak Yapısal Değişimler ve Ortak Faktörler ile Panel Birim Kök Yaklaşımı

Abstract

Gelişmekte olan ülkelerde (GOÜ) mali sürdürülebilirliği hükümet bütçe dengesi üzerinden, yaklaşık yarım asırlık bir dönem (1970-2022) için, ortak faktörler ve Fourier kırılmaları içeren panel birim kök yaklaşımıyla test ediyoruz. Ayrıca, ortak faktörler altında keskin tip kırılmaları dikkate alan bir yöntem uygulayarak karşılaştırma imkanı sağlıyoruz. Keskin tip kırılma testinin sonuçları, GOÜ'lerde bütçe yapısının hem panel hem de yatay kesit düzeyinde sürdürülemez olduğunu ortaya koymaktadır. Buna karşın, Fourier kırılma testi, panel düzeyinde ve altı ülke (Endonezya, Peru, Filipinler, G. Afrika, Tayland ve Türkiye) için mali sürdürülebilirliği doğrulamaktadır. Çalışma, GOÜ gibi çok sayıda kırılmanın olduğu örneklerde, keskin kırılma yaklaşımlarının veri yapısını açıklamada yetersiz kaldığını savunmaktadır. Farklı analiz bulguları, Fourier kırılma yaklaşımlarının ampirik literatürdeki bu boşluğu doldurmak için güçlü adaylar olduğunu vurgulamaktadır. Son olarak, makale yeni yaklaşımla elde edilen bulgulara dayalı politika önerileri sunmaktadır.

Keywords

• Mali Sürdürülebilirlik
• Gelişmekte Olan Piyasalar
• Fourier Kırılımlar
• Ortak Faktörler
• Panel Birim Kök

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