 Are fiscal rules efficient on public debt restraint in the presence of shadow economy?Eugenia Ramona Mara and Raluca Maran Finance Research Letters, 2024, vol. 64, issue C Abstract: This paper provides an analysis of the role played by fiscal rules and the shadow economy in the evolution of public debt. Thus, we investigate the effectiveness of fiscal rules in limiting the level of indebtedness in the presence of a shadow economy (SE) in 194 advanced, emerging, and developing countries over the period 1995–2021. The SE harms public revenue collection and leads to an increase in the budget deficit. Better management of public finances is difficult to achieve in the presence of a SE. We find that governments should try to limit the spread of SE to achieve sustainable public finance and maintain public indebtedness within reasonable limits. The results from the cointegration technique suggest that in the long run, the efficiency of fiscal rules is conditioned by the decrease of the SE, and only after this prerequisite is attained can a favorable evolution of public debt be expected. The empirical findings confirm the significant contribution of the SE to the public debt increase and the ineffectiveness of the fiscal rules applied. Keywords: Public debt; fiscal rules; shadow economy; panel cointegration; FMOLS; DOLS (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324005257 DOI: 10.1016/j.frl.2024.105495 Access Statistics for this article Finance Research Letters is currently edited by R. Gençay More articles in Finance Research Letters from Elsevier |
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