The sustainability of Fiji’s budget deficit: an econometric analysis

Abstract

The sustainability of Fiji's budget deficit is examined here within the framework of inter-temporal budget constraint theory, where government revenue is modelled as a function of government expenditure. An error-correction mechanism test for cointegration finds that government revenue and expenditure are cointegrated, which provides some support for the position that Fiji?s budget deficit is sustainable in the long run. It is argued that more government expenditure on capital investment will ensure a broader revenue base and reduce the risk of a budget deficit explosion.