Governments’ Payment Discipline: The Macroeconomic Impact of Public Payment Delays and Arrears

Cristina Checherita-Westphal, Alexander Klemm and Paul Viefers
Authors registered in the RePEc Author Service: Cristina Checherita Westphal

No 2015/013, IMF Working Papers from International Monetary Fund

Abstract: This paper considers the impact of changes in the payment discipline of governments on the private sector. We argue that increased delays in public payments can affect private sector liquidity and profits and hence ultimately economic growth. We test this prediction empirically for European Union countries using two complementary approaches. First, we use annual panel data, including a newly constructed proxy for government arrears. We find that payment delays and to some extent estimated arrears lead to a higher likelihood of bankruptcy, lower profits, and lower economic growth. However, while this approach allows a broad set of variables to be included, it restricts the number of time periods. We therefore complement it with a Bayesian VAR approach on quarterly data for selected countries faced with significant payment delays. We again find that the likelihood of bankruptcies rises when governments increase the average payment period.

Keywords: WP; trade credit; accounts payable; private sector; Public payment delays; government arrears; government spending; payment delay; payment arrears; payment duration; payment period; delayed payment; payment order; payment term; Arrears; Trade credits; Public sector; Labor force; Credit (search for similar items in EconPapers)
Pages: 32
Date: 2015-01-22
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Governments’ payment discipline: The macroeconomic impact of public payment delays and arrears (2016)
Working Paper: Governments' payment discipline: the macroeconomic impact of public payment delays and arrears (2015)
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