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

Journal of Macroeconomics, 2016, vol. 47, issue PB, 147-165

Abstract: This paper considers the impact of changes in governments’ payment discipline 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. Using panel data techniques, including methods that allow for endogeneity, we find that payment delays and to some extent estimated arrears lead to a higher likelihood of bankruptcy, lower profits and lower economic growth. 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. With this second approach, we also find that the likelihood of bankruptcies rises when the governments increase the average payment period.

Keywords: Public payment delays; Government arrears; Accounts payable; Government spending (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070415001457
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Governments' payment discipline: the macroeconomic impact of public payment delays and arrears (2015)
Working Paper: Governments’ Payment Discipline: The Macroeconomic Impact of Public Payment Delays and Arrears (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:47:y:2016:i:pb:p:147-165

DOI: 10.1016/j.jmacro.2015.12.003

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().