Fiscal Policy and Default Risk in Emerging Markets

Gabriel Cuadra () and Horacio Sapriza

No 2007-03, Working Papers from Banco de México

Abstract: Emerging economies usually experience procyclical public expenditures, tax rates and private consumption, countercyclical default risk, interest rate spreads and current account and higher volatility in consumption than in output. In this article we develop a dynamic stochastic equilibrium model of a small open economy with endogenous fiscal policy, endogenous default risk and country interest rate spreads in an incomplete credit markets framework that rationalizes these empirical findings.

Keywords: Procyclical fiscal policy; Sovereign default (search for similar items in EconPapers)
JEL-codes: F34 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge and nep-rmg
Date: 2007-03

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Related works:
Working Paper: Fiscal policy and default risk in emerging markets (2009)
Journal Article: Fiscal Policy and Default Risk in Emerging Markets
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Persistent link: http://EconPapers.repec.org/RePEc:bdm:wpaper:2007-03

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