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Mr. Paul Cashin, Nilss Olekalns, and Ms. Ratna Sahay

events) than is contained in past values of the expenditure series ( Ghosh (1995) ). Under the null hypothesis that equation (1) holds, and so the budget surplus equals the discounted value of future changes in government expenditure (given the government’s information set), then the surplus should take into account this additional information and so Granger-cause changes in government spending. The second testable implication of equation (1) is that the smoothed budget surplus should be stationary. Assuming that g t is I (1), then Δ g t will be I (0); since

Mr. Troy D Matheson and Ms. Joana Pereira
We find historical fiscal multipliers for Brazil around 0.5, larger than what existing literature typically identifies for the average emerging market. However, spending and public credit multipliers seem to have dropped to near zero since the global financial crisis, as the estimate for the whole sample period (1999-2014) is about ½ of that for precrisis years. By contrast, revenue multipliers have remained broadly stable. We conclude that fiscal consolidations based on expenditure and public credit retrenchment are likely to entail a modest drag on growth in the near term.
Mr. Serhan Cevik and Vibha Nanda
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.
Mr. Serhan Cevik and Vibha Nanda

.088 Note: The dependent variable is the cyclically adjusted primary balance (CAPB) as defined in Section III . Robust standard errors, clustered at the country level, are reported in brackets. A constant is included in each regression, but not shown in the table. *, **, and *** denote significance at the 10%, 5%, and 1% levels, respectively. The composition of fiscal adjustment, presented in Table 3 , is consistent with long-term debt sustainability, but expenditure policies exhibit a procyclical bias . Using the cyclically adjusted revenue and expenditure series

International Monetary Fund. External Relations Dept.
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