Estimation of maximum debt for emerging countries: An analysis by fiscal reaction function

Rai da Silva Chicoli () and Siegfried Bender ()

No 2019_44, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: Through a fiscal reaction function that verifies the hypothesis of fiscal fatigue, for a group of 19 emerging countries over the period 2003-2016, and with hypothesis about the difference between interest rate and economic growth, this article seeks to obtain the debt limit for this group of countries. As a result, we confirm the hypothesis of fiscal fatigue, even for robustness exercises, with a reduction of marginal primary result to levels of debt around 70% of GDP and negative marginal primary result around 110% of GDP, well below the results for advanced economies around 100% and 150% of GDP, respectively. In addition, we observed average debt limit around 154% and 128% of GDP for deterministic and stochastic cases, with a significant fiscal space for most countries, except for Croatia, Brazil and Hungary, where a fiscal adjustment must be done to reduce current debt.

Keywords: Debt Limit; Fiscal Fatigue; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E62 H62 H63 (search for similar items in EconPapers)
Date: 2019-11-05
New Economics Papers: this item is included in nep-mac and nep-pub
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