Deep Roots of Fiscal Behavior

Cevik, Serhan; Teksoz, Katerina

doi:10.5089/9781475516111.001

Cited by 12 publications

(9 citation statements)

References 58 publications

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“…Second, the coefficient on (lagged) government debt is also found to have a significant negative sign, which means that there is no positive response in the CAPB to changes in the debt-to-GDP ratio and therefore the necessary condition of fiscal sustainability was not met during the sample period. These findings are in line with the literature showing that developing countries tend to exhibit procyclicality in fiscal policy (Gavin and Perotti, 1997;Talvi and Vegh, 2005;Alesina, Campante, and Tabellini, 2008;Iletzki and Vegh, 2008;Cevik and Teksoz, 2014), but contradictory with the cross-country analysis of Caribbean countries that are found to maintain a countercyclical fiscal stance and take corrective actions against an increase in the debt-to-GDP ratio (Cevik and Nanda, 2019). However, it should be noted that there has been a significant shift in Belize's fiscal effort over the past two years following the latest debt restructuring (similar to previous episodes in 2007 and 2013), as indicated by a larger coefficient (in absolute value) on the debt variable when the model is estimated for the period until 2016.…”

Section: Table 1 Fiscal Reaction Function Estimates For Belizesupporting

confidence: 90%

Back to the Future

Cevik

2019

IMF Working Papers

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This paper assesses the cyclicality and sustainability of fiscal policy in Belize and applies a stochastic simulation model to determine the optimal set of fiscal rules. The empirical analysis shows that fiscal policy in Belize has been significantly procyclical and unsustainable much of the period since 1976. While the government’s recent commitment to maintain a primary surplus of at least 2 percent of GDP until 2021 is supporting debt reduction, stochastic simulations indicate that further improvement in the primary balance is necessary to reliably bring the debt-to-GDP ratio to a sustainable path. Given Belize’s history of large economic shocks, this paper proposes explicit fiscal rules designed for countercyclical policy and debt sustainability. It recommends integrating such rules into a well-designed fiscal responsibility law and establishing an independent fiscal council to improve accountability and transparency.

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Section: Table 1 Fiscal Reaction Function Estimates For Belizesupporting

confidence: 90%

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Cevik

2019

IMF Working Papers

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“…Such a debate is equally at work when differentiating countries depending on their level of economic development: the response of the CAPB is not significant in the sample of 49 advanced and emerging market economies forCevik and Teksoz [2014], but significant and positive forTapsoba [2012] who considers 74 developing countries.…”

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confidence: 99%

National fiscal rules and fiscal discipline in the European Union

2021

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Motivated by the fiscal imbalances in the EU countries in the recent period, this paper analyzes the effect of national fiscal rules on fiscal discipline. Using a careful definition of national fiscal rules combined with a novel measure of fiscal discipline (the Global Financial Performance Index-GFPI), propensity score matching estimations that account for potential endogeneity reveal that fiscal rules significantly improve the GFPI. However, this favorable effect dramatically depends upon the type of fiscal rule and different structural factors. These two features, together with alternative measures of fiscal discipline, are found to be key ingredients that should be taken into account when assessing the effects of fiscal rules on fiscal discipline.

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“…A similar result is found by Mendoza and Ostry (2008) for 22 industrialized countries during the period 1970-2005 and 34 developing countries during the period 1990-2005. Looking at a balanced panel of 49 advanced and emerging market economies over the period 1990-2012, Cevik and Teksoz (2014) show that fiscal policy after the global financial crisis has turned even more procyclical and become less responsive to the government's intertemporal budget constraint and, therefore, long-run fiscal solvency concerns, especially in developing countries.…”

Section: Related Literaturementioning

confidence: 99%

Riding the Storm

Cevik

Nanda

2020

IMF Working Papers

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Fiscal sustainability remains a paramount challenge for small economies with high debt and greater vulnerability to climate change. This paper applies the model-based sustainability test for fiscal policy in a panel of 16 Caribbean countries during the period 1980–2018. The results indicate that the coefficient on lagged government debt is positive and statistically significant, implying that fiscal policy in the Caribbean takes corrective actions to counteract an increase in the debt-to-GDP ratio. Nonlinear estimations, however, show that the quadratic debt parameter is negative, which indicates that fiscal policy response is not adequate to ensure sustainability at higher levels of debt. We also find that the fiscal stance tends to be countercyclical on average during the sample period. These empirical results confirm that maintaining prudent fiscal policies and implementing growth-enhancing structural reforms are necessary to build fiscal buffers and ensure debt sustainability with high probability even when negative shocks occur over the long term.

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Deep Roots of Fiscal Behavior

Cited by 12 publications

References 58 publications

Back to the Future

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National fiscal rules and fiscal discipline in the European Union

Riding the Storm

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