Economic Consequences of High Public Debt: Evidence from Three Large Scale DSGE Models

Burriel, Pablo; Checherita‐Westphal, Cristina; Jacquinot, Pascal; Stähler, Nikolai; Schön, Matthias

doi:10.2139/ssrn.3659874

Cited by 17 publications

(14 citation statements)

References 19 publications

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“…High indebtedness can generate a negative effect on economic growth and private investment (Fatás et al, 2020;Yared, 2019), as well as diminish the capacity of governments to respond to adverse shocks such as natural disasters, financial crises, or wars (Obstfeld, 2013;Romer & Romer, 2018). Additionally, countries with higher indebtedness present a greater sensitivity to spillover effects, because their economies are more vulnerable to macroeconomic shocks (Burriel et al, 2020). Moreover, in default episodes, financial institutions and private companies have less access to financial systems and export markets (Borensztein & Panizza, 2008;Hébert & Schreger, 2017).…”

Section: Introductionmentioning

confidence: 99%

Fiscal Rules and Economic Cycles: Quality (Always) Matters

Andrián¹,

Valencia²,

Hirs³

et al. 2023

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Governments can issue public debt for both good and bad reasons. The former include intertemporal tax smoothing, fiscal stimulus, and asset management. In contrast, the bad reasons, which generate higher indebtedness, are mainly associated with political cycles, rent capture, intergenerational transfers, and common pool problems. Fiscal rules aim to eliminate the problem of time inconsistency of public finances and minimize debt accumulation by setting debt limits. Despite the theoretical relevance of fiscal rules and institutions to the proper management of fiscal processes in different countries, the evidence indicates mixed results regarding the effectiveness of this type of mechanism for fiscal performance. To understand the effect that fiscal rules have on public debt, this paper studies the effect of different types of rules on debt behavior and their differential effects with respect to the economic cycle. Using a dynamic panel, which enables us to control for endogeneity problems, and the use of a fiscal rule quality index (Schaechter et. al., 2012), this paper finds that fiscal rules only have a significant effect on the reduction of public debt during the positive side of the economic cycle if adequate institutional arrangements accompany them. Furthermore, only some types of fiscal rules (expenditure rules) show a significant effect during the negative part of the cycle. These results have relevant policy implications, as they underscore the importance of (1) developing institutional arrangements that promote the proper functioning of fiscal rules and (2) considering economic cycle asymmetries in order to ensure the appropriate operation of fiscal rules and the fulfillment of policy objectives.

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Section: Introductionmentioning

confidence: 99%

Fiscal Rules and Economic Cycles: Quality (Always) Matters

Andrián¹,

Valencia²,

Hirs³

et al. 2023

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“…Deleveraging can reduce its negative effects on economic growth. However, some studies have found that a sharp reduction in leverage could reduce economic growth and may even lead to long-term recession [72][73][74][75][76]. Liu Xiaoguang et al [4] believed that the efficiency of leverage is crucial to economic growth and at the core of striking a balance between leverage and economic growth.…”

Section: How To Balance Between Implicit Contingent Liabilities and E...mentioning

confidence: 99%

Leverage of Local State-Owned Enterprises, Implicit Contingent Liabilities of Government and Economic Growth

Duan

Guo

Huang³

2022

Sustainability

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Local state-owned enterprises (SOEs) working together with local governments can promote economic growth. However, an increase in the implicit contingent liabilities of local governments due to implicit guarantees given to SOEs has a negative effect on economic growth. The classical socialist theories and the economic stability in each financial crisis of China show that the macroeconomic efficiency of SOEs is more important than the microeconomic efficiency, and microeconomic efficiency in neoclassical economic theory cannot reflect the nature of SOEs. It is of great practical and theoretical significance to make a more comprehensive and accurate judgment on the efficiency of SOEs. This paper constructs an index of local governments’ implicit contingent liabilities in 31 provinces based on the 488 local SOEs to study the impact of implicit contingent liabilities, and the time period is the year 2007 to the year 2020. Our findings show that an increase in local SOEs’ assets suppresses economic fluctuations at the cost of increasing government’s implicit contingent debt and has a negative impact on economic growth. Unlike the fiscal influence path of explicit debt, implicit contingent debt restrains local economic growth through financial markets. The deleveraging of local SOEs and improving their efficiency can improve the overall efficiency of local funds and reduce the negative effect of local governments’ implicit contingent liabilities on economic growth.

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“…Государственный долг является важнейшим источником ресурсов правительства для финансирования государственных расходов и заполнения пробелов в бюджете, поэтому в отношении к ВВП обычно используется в качестве показателя способности правительства выполнять свои обязательства в будущем. Согласно (Burriel et al 2020), государственный долг представляется неотъемлемой частью функционирования рыночной экономики. В литературе говорится о том, что для любой экономики существуют определенные издержки и выгоды, связанные с долгом.…”

Section: Introductionunclassified

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2024

ESC / ЭиСП

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A peer-reviewed scientific journal that covers issues of analysis and forecast of changes in the economy and social spheres in various countries, regions, and local territories.The main purpose of the journal is to provide the scientific community and practitioners with an opportunity to publish socio-economic research findings, review different viewpoints on the topical issues of economic and social development, and participate in the discussion of these issues. The remit of the journal comprises development strategies of the territories, regional and sectoral economy, social development, budget revenues, streamlining expenditures, innovative economy, and economic theory.

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Economic Consequences of High Public Debt: Evidence from Three Large Scale DSGE Models

Cited by 17 publications

References 19 publications

Fiscal Rules and Economic Cycles: Quality (Always) Matters

Fiscal Rules and Economic Cycles: Quality (Always) Matters

Leverage of Local State-Owned Enterprises, Implicit Contingent Liabilities of Government and Economic Growth

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