International Evidenceon Fiscal Solvency: Is Fiscal Policy "Responsible"?

Author/Editor:

Enrique G. Mendoza ; Jonathan David Ostry

Publication Date:

March 1, 2007

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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. Evidence of fiscal solvency is much weaker, however, at high debt levels. These findings suggest that many industrial and emerging market 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.

Series:

Working Paper No. 2007/056

Subject:

Expenditure Financial sector policy and analysis Fiscal policy Fiscal stance Public debt Solvency

English

Publication Date:

March 1, 2007

ISBN/ISSN:

9781451866209/1018-5941

Stock No:

WPIEA2007056

Pages:

30

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