Can fiscal rules improve financial market access for developing countries?

Pegdewende Sawadogo

Journal of Macroeconomics, 2020, vol. 65, issue C

Abstract: A number of countries have introduced fiscal rules to deter fiscal profligacy, enhance the credibility of fiscal policy, and reduce borrowing costs. In this paper, we examine the outcome of fiscal rules in terms of improving financial market access for developing countries. We use entropy balancing and various propensity score matching. We find that the adoption of fiscal rules reduces sovereign bond spreads and increases sovereign debt ratings for a sample of 36 developing countries, which are part of the JP Morgan Emerging Markets Bond Index Global (EMBIG), for the period 1993-2014. We explain this finding by the effect of fiscal rules on the credibility of a country's fiscal policy: more credible governments are rewarded in the international financial markets by low sovereign bond spreads and high sovereign debt ratings. These results are robust to a wide set of alternative specifications. We also show that this favorable effect is sensitive to several country structural characteristics. Our findings confirm that the adoption and sound implementation of fiscal rules is an instrument for policy makers to improve developing countries’ financial market access.

Keywords: Fiscal rules; Bond spreads; Sovereign debt ratings; Entropy balancing (search for similar items in EconPapers)
JEL-codes: F34 G15 H11 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Can fiscal rules improve financial market access for developing countries? (2020)
Working Paper: Can fiscal rules improve financial markets access for developing countries ? (2019)
Working Paper: Can fiscal rules improve financial markets access for developing countries ? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:65:y:2020:i:c:s0164070420301403

DOI: 10.1016/j.jmacro.2020.103214

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