The sustainability of subnational public debt: Evidence from Mexican states

The Sustainability of Mexican Municipal Public Debt

“…First, we performed the unit root test. Second, we departed from Bohn's model and followed Cabral et al's [11] econometric approach based on Wickens's work [36]. Section 3 discusses this model further.…”

“…Therefore, we propose to approximate it using an alternative measure. Following Cabral et al, we estimate Equation ( 6) by employing guaranteed resources (income plus non-conditional transferences) as GDP alternative [11]. In contrast with central fiscal authorities, municipalities have limited availability to collect taxes; thus, the use of guaranteed resources is reasonable.…”

“…In Mexico's case, we found public debt sustainability studies only at the national [21] and state levels [11]. Multiple works analyze public debt determinants at the municipal level [22].…”

“…Bohn's model has gained popularity due to its flexibility and statistical properties. However, Cabral, del Castillo, and Hernández-Trillo [11] have recently derived a sustainability indicator based on a balanced budget constraint that provides an intuitive interpretation of sustainability. In this paper, we will use this indicator to assess debt sustainability.…”

Analysing public debt in the Mexican states: Spatial convergence, regional drivers and policy recommendations

“…Public debt sustainability is one of the necessary conditions for a state to be able to improve its economic growth and have greater long‐term development (Cabral et al, 2022; del Castillo et al, 2022). Therefore, it is important to analyse a country's public debt to design public policies that contribute to the consolidation of a stable macroeconomic scenario that allows for sustainable growth and economic development (Rivas Valdivia, 2021).…”