International Evidence on Fiscal Solvency

Description

"This paper looks at fiscal solvency and public debt sustainability in both emerging market and advanced countries. Evidence of fiscal solvency, in the form of a robust positive conditional relationship between public debt and the primary fiscal balance, is established in both groups of countries, as well as in the sample as a whole. Evidence of fiscal solvency is much weaker, however, at high debt levels. The debt-primary balance relationship weakens considerably in emerging economies as debt rises above 50 percent of GDP. Moreover, the relationship vanishes in high-debt countries when the countries are split into high- and low-debt groups relative to sample means and medians, and this holds for industrial countries, emerging economies, and in the combined sample. These findings suggest that many industrial and emerging economies, including several where fiscal solvency has been the subject of recent debates, appear to conduct fiscal policy responsibly. Yet our results cannot reject the hypothesis of fiscal insolvency in groups of countries with high debt ratios, where the response of the primary balance to increases in debt is not statistically significant"--National Bureau of Economic Research web site.

Subjects

Other Editions

• International Evidence on Fiscal Solvency: Is Fiscal Policy Responsible?International Monetary Fund2007-01-01
• International Evidence on Fiscal SolvencyInternational Monetary Fund2007-01-01
• International Evidence on Fiscal SolvencyInternational Monetary Fund2007-01-01
• International evidence on fiscal solvencyElectronic resourceNational Bureau of Economic Research2007-01-01