Public finance sustainability plays a central role in the stabilization efforts in Latin America. The emphasis on fiscal policy in these countries goes back to the debt crisis of the 1980s, which was associated with large fiscal imbalances. We analyze the sustainability of government debt for a...

Using a new methodology that allows for nonlinearities, we find frequent support for sustainability in the debt of a set of Latin American countries. Our findings overturn results obtained with traditional unit-root tests and provide a more realistic alternative to evaluate the external solvency...