Size-corrected inference in fiscal policy reaction functions: a three country assessment

Herwartz, Helmut; Rengel, Malte

doi:10.1007/s00181-017-1282-x

Cited by 2 publications

(1 citation statement)

References 43 publications

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“…Thus, earlier signals to prevent the occurrence call for the need to address the MIST debt sustainability problem. Some studies have claimed that poor supervision of the financial institution coupled with lack of fiscal discipline is a new channel through which public debt can become a dilemma, especially when the gap between the rich and the poor becomes obvious [20,25,45]. It became more serious when the people cannot guarantee the safety of funds, due to expected financial crises.…”

Section: Introductionmentioning

confidence: 99%

Debt sustainability and the fiscal reaction function: evidence from MIST countries

Ogbeifun

Shobande

2020

Futur Bus J

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The use of public debt is not new in financing developmental objectives. A significant challenge arose when it became obvious that the indebted countries could not fulfill its existing financial obligation to the rest of the world where debt is sourced. For a panel of 4 heterogeneous countries from 1990 to 2017, we study governments’ reactions to debt accumulation and the corrective measures taken when its borrowings result in a rise in debt–GDP ratio. The study evidence is based on the fixed effect and the feasible generalized least squares estimators. We find evidence that primary balance improves by about 0.005–0.013 for every 1 percentage point increase in central government debt after controlling for other relevant factors. The results further suggest that the accrued interest payments on debt reflect the effective debt management policies across the countries, whereas the activities on the current account balance impose a possible threat to the primary balance. The study calls for policies that increase fiscal bases through the reduction in fiscal expenditure and the reinforcement of tax base revenue across the MIST countries.

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Section: Introductionmentioning

confidence: 99%