Leading indicators of fiscal distress: evidence from extreme bounds analysis

Bruns, Martin; Poghosyan, Tigran

doi:10.1080/00036846.2017.1366639

Cited by 10 publications

(4 citation statements)

References 30 publications

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“…Hernandez de Cos et al [23] find that fiscal balance over GDP and real GDP growth are important determinants of debt crisis. Bruns and Poghosyan [69] and Cerovic et al [59] find that primary and overall fiscal balance to GDP ratios have a significant impact on debt crisis. Figure 4 presents the actual and fitted values of the models estimated for the EU-15.…”

Section: Estimation Resultsmentioning

confidence: 99%

“…Previous studies in the literature have found that increases in short-term debt, total external debt to GDP ratio, current account deficit to GDP ratio, inflation, level of reserves/GDP ratio, political problems, and trade openness increase the probability of debt crisis. They also find that decreases in foreign exchange reserves, real GDP growth, and primary and overall fiscal balance to GDP ratios are important determinants of debt crises [22,23,25,34,58,59,68,69].…”

Section: Estimation Resultsmentioning

confidence: 99%

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Determinants of the European Sovereign Debt Crisis: Application of Logit, Panel Markov Regime Switching Model and Self Organizing Maps

Allégret

Cergibozan

2023

Entropy

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The study aims to empirically identify the determinants of the debt crisis that occurred within the framework of 15 core EU member countries (EU-15). Contrary to previous empirical studies that tend to use event-based crisis indicators, our study develops a continuous fiscal stress index to identify the debt crises in the EU-15 and employs three different estimation techniques, namely self-organizing map, multivariate logit and panel Markov regime switching models. Our estimation results show first that the study correctly identifies the time and the length of the debt crisis in each EU-15-member country. Empirical results then indicate, via three different models, that the debt crisis in the EU-15 is the consequence of deterioration of both financial and macroeconomic variables such as nonperforming loans over total loans, GDP growth, unemployment rates, primary balance over GDP, and cyclically adjusted balance over GDP. Furthermore, variables measuring governance quality, such as voice and accountability, regulatory quality, and government effectiveness, also play a significant role in the emergence and the duration of the debt crisis in the EU-15.

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Section: Estimation Resultsmentioning

confidence: 99%

Section: Estimation Resultsmentioning

confidence: 99%

Determinants of the European Sovereign Debt Crisis: Application of Logit, Panel Markov Regime Switching Model and Self Organizing Maps

Allégret

Cergibozan

2023

Entropy

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“…In summary, although the question of endogeneity is important, the interest of this paper is not to treat this question but rather to highlight the variables linked in a robust way to budgetary deficits, starting from a large number of potential determinants already used in previous studies. Basically, studies whose objective is similar to ours and which rely on a large set of potential determinants do not deal with the issue of endogeneity, even though its importance is not overlooked (see among others, Woo, 2003a;Ghosh and Yamarik, 2004;Serra, 2006;Gassebner, Gutmann, and Voigt, 2016;Bruns and Poghosyan, 2018). However, to control endogeneity to a certain extent, we perform panel regressions with 5-year lagged explanatory variables.…”

Section: The Issue Of Endogeneitymentioning

confidence: 99%

Robust structural determinants of public deficits in developing countries

Gnimassoun

Santos

2020

Applied Economics

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Many macroeconomic, institutional, demographic, social and political variables have been proposed by previous studies as significant determinants of public deficits in developing countries. This paper asks whether their estimated impact on public deficits is robust under thousands of possible alternative specifications. We deal with model uncertainty using Sala-i-Martin's Extreme Bound Analysis. Our results clearly show that external shocks, the debt ratio, financial development, the level of democracy and government control over expenditures are robustly associated with fiscal deficits. Public deficits are lower in countries which provide better stability of public expenditure in the face of revenue instability and which are less exposed to negative external shocks. In contrast, fiscal deficits increase with the debt ratio, financial development and the level of democracy. The relative importance of external shocks in all the regressions argues in favour of greater economic diversification in order to mitigate the impact of negative shocks on public finances.

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“…Therefore, there are identified four types of criteria to capture this phenomenon: (1) debt default or restructuring, (2) sovereign bond yield pressure, (3) large International Monetary Fund-supported programme and (4) excessive inflation. In many cases these episodes coincide with currency and banking crises as well as may have originated outside of the fiscal sector (Bruns & Poghosyan, 2018, pp. 1455-1456.…”

Section: Introductionmentioning

confidence: 99%

Importance of the Size of Local Government in Avoiding the Fiscal Distress – Empirical Evidence on Communes in Poland

Galiński

2023

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Theoretical background: In the literature on finance there are findings which examine reasons for the fiscal distress of units of the public sector, including local governments. However, this distress might be differently defined. Therefore, it determines both the approach to identify this phenomenon and the types of explanatory variables. Nevertheless, in the field of the business sector in the econometric models concerning the financial distress the size of the unit is considered. In this case there are also some possibilities to apply the correct proxy variable. This results from the fact that the size of local government might determine its fiscal capability as well as the level and structure of expenditures, which affect fiscal distress. Purpose of the article: The aim of this paper is to examine the influence of the size of the local government on the probability of the decrease of the exposure to the fiscal distress. Research methods: The author reviewed the literature in the field of the fiscal distress and introduced a multi-criteria decision analysis as well as a logistic regression modelling to examine this. The research procedure also required the use of the linear ordering to construct the dependent variable of the fiscal distress in order to analyse the “size effect” on the fiscal distress. Main findings: Fiscal distress of local governments is a core issue, which should be constantly analysed. It depends on the financial, economic, social and even political aspects. To identify exposure to this distress the TOPSIS method can be used. However, the fiscal distress can be affected by the size of the unit, which influences lots of budgetary categories. Due to the specificity of dependent and independent variables in the econometric models the “size effect” might be represented through the level of the population or the assets. Using the ordinal logistic regression in the research, the authors should consider that this effect can differ between the units with the disparate exposure. So, the partial proportional odds models can be required. Thus, the growth of the size of the unit, measured by the population, increases the odds of reaching very low exposure to fiscal distress. Simultaneously, there are some other important issues which should be included in this type of research.

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Leading indicators of fiscal distress: evidence from extreme bounds analysis

Cited by 10 publications

References 30 publications

Determinants of the European Sovereign Debt Crisis: Application of Logit, Panel Markov Regime Switching Model and Self Organizing Maps

Determinants of the European Sovereign Debt Crisis: Application of Logit, Panel Markov Regime Switching Model and Self Organizing Maps

Robust structural determinants of public deficits in developing countries

Importance of the Size of Local Government in Avoiding the Fiscal Distress – Empirical Evidence on Communes in Poland

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