A quest between fiscal and market discipline

Agnello, Luca; Castro, Vı́tor; Sousa, Ricardo M.

doi:10.1016/j.econmod.2022.106119

Cited by 3 publications

(1 citation statement)

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“…A currency crisis could also occur concurrently with a fiscal crisis if the budget deficit is financed through an unsustainable macroeconomy policy mix (Krugman, 1979). It is also motivated by the fact that financial stress makes fiscal discipline a destabilizing factor (Agnello et al, 2023). The signs and statistical significance of the estimated coefficients did not differ much from the baseline results, while the two financial crisis dummies are statistically insignificant.…”

Section: Resultsmentioning

confidence: 99%

Fiscal crises, decentralization, and indiscipline

Nakatani

2023

Scottish J Political Eco

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How does fiscal decentralization influence fiscal discipline and the probability of a fiscal crisis? Discrete choice analysis used with panel data reveals that crisis probability is associated positively with spending decentralization and negatively with vertical fiscal imbalance. These effects are prevalent in countries with a higher degree of tax revenue decentralization, while a stronger rule of law mitigates such adverse decentralization effects. The findings imply that reduced risk sharing against local shocks under tax revenue decentralization destabilizes the sustainability of a nation's fiscal system. Therefore, policymakers should be cognizant of the undesirable impacts of decentralization on fiscal crisis and indiscipline.

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Section: Resultsmentioning

confidence: 99%