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Stock flow adjustments in sovereign debt dynamics: The role of fiscal frameworks

Antonio Afonso and Joao Jalles ()

International Review of Economics & Finance, 2020, vol. 65, issue C, 1-16

Abstract: We assess, by means of system GMM, how Stock Flow Adjustments (SFA) affect the debt-to-GDP ratio in a panel of 65 countries (covering both developed and emerging and low-income countries) between 1985-2014. In addition, we inspect the role of fiscal rules in affecting SFAs. We find that SFAs positively contribute to the change in the debt-to-GDP ratio with a coefficient close to one. Fiscal rules in general did not led governments to a systematic use of SFAs to lower budget deficits; however, the existence of fiscal rules with monitor compliance contributes to lower the debt level, although the cyclical deficit partly counteracts this desirable effect. The time period matters: the fall in the debt ratio due to the presence of fiscal rules before the crisis was between 1.7 and 4.2 percent of GDP while after the Global Financial Crisis, revenue and debt-based rules did not contribute to the reduction of debt, which was reinforced with large SFAs.

Keywords: Government debt; Budget deficit; Structural deficit; Intertemporal government budget constraint; Fiscal rules; Panel data; System GMM; Filtering (search for similar items in EconPapers)
JEL-codes: E62 F32 F41 H87 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Stock Flow Adjustments in Sovereign Debt Dynamics: The Role of Fiscal Frameworks (2019) Downloads
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DOI: 10.1016/j.iref.2019.09.007

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