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A Balance-Sheet Approach to Fiscal Sustainability

Eduardo Levy-Yeyati and Federico Sturzenegger
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Eduardo Levy-Yeyati: Universidad Torcuato Di Tella and World Bank

Authors registered in the RePEc Author Service: Eduardo Levy Yeyati ()

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: Recent empirical research on emerging markets debt, currency crises and fiscal sustainability has placed a significant focus on the role of currency mismatches with the emphasis placed on the currency composition of explicit government liabilities. The key insight of this paper is that these liabilities, while relevant, usually represent a small share of actual government liabilities: indeed, as an indicator of fiscal solvency, they are relatively uninformative – and possibly misleading – if not matched with the remaining liabilities (promises of wage and pension payments among others) and the asset side of the government’s balance sheet: financial and real government assets as well as the present value of future tax collection. These non-debt liabilities and assets may be affected by changes in the real exchange rate in a way that dwarfs the effect on the explicit liabilities which are typically the focus of attention. With this in mind, this paper proposes a balance-sheet approach that, as illustrated by the practical applications included here, may radically alter the results from traditional sustainability evaluations – and, more generally, the perception of a country’s fiscal vulnerability.

Date: 2007-10
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https://research.hks.harvard.edu/publications/work ... ?PubId=4993&type=WPN

Related works:
Working Paper: A balance-sheet approach to fiscal sustainability (2021) Downloads
Working Paper: A Balance-Sheet Approach to Fiscal Sustainability (2021) Downloads
Working Paper: A Balance-Sheet Approach to Fiscal Sustainability (2007) Downloads
Working Paper: A Balance-Sheet Approach to Fiscal Sustainability (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp07-044

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