EconPapers    
Economics at your fingertips  
 

The impact of contingent liability realizations on public finances

Elva Bova, Marta Ruiz-Arranz, Frederik Toscani and Hatice Elif Ture
Additional contact information
Marta Ruiz-Arranz: Inter-American Development Bank
Hatice Elif Ture: International Monetary Fund

International Tax and Public Finance, 2019, vol. 26, issue 2, No 6, 417 pages

Abstract: Abstract The 2008 global financial crisis highlighted the significant impact bank bailouts, state-owned enterprise recapitalizations, and other so-called contingent liability realizations can have on public finances. In this paper, we construct a novel dataset of contingent liability realizations in advanced and emerging market economies for the period 1990–2014. We find that when they materialize, contingent liabilities are a major source of fiscal distress. The average gross government payout related to a contingent liability realization is 6% of GDP, but gross payouts can be as high as 40% of GDP for major financial sector bailouts. Contingent liability realizations from different sources are correlated among each other and tend to occur during periods of weak growth and economic crisis, accentuating pressure on public finances during already difficult times. We find that they accounted for as much as one-third of the debt increases after the financial crisis. Indicative evidence suggests that countries with stronger governance indicators and, in particular, more comprehensive coverage of fiscal accounts, suffer more moderate contingent liability realizations. Improved oversight and transparency thus seems to go some way in reducing public financial risks.

Keywords: Contingent liabilities; Fiscal risks; Public debt; Fiscal crises (search for similar items in EconPapers)
JEL-codes: E62 H60 H63 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s10797-018-9496-1 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
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:kap:itaxpf:v:26:y:2019:i:2:d:10.1007_s10797-018-9496-1

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-018-9496-1

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2022-09-23
Handle: RePEc:kap:itaxpf:v:26:y:2019:i:2:d:10.1007_s10797-018-9496-1