Power-law distribution in the external debt-to-fiscal revenue ratios: Empirical evidence and a theoretical model

Gilles Dufrénot () and Anne Paret

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Abstract: This paper provides evidence that the external debt-to-fiscal revenue ratio in emerging countries follows a power-law distribution. Such a distribution reflects the fact that external debt distress or debt crises correspond to extreme events that have been found to happen fairly often. We formally test the hypothesis of a power-law, going further than the usual visual inspection of the distribution of the variable of interest on a doubly logarithmic scale. We also show that such a distribution can be derived from a theoretical model in which uncertainty comes from tax evasion and corruption. Using the framework of an optimal stochastic growth model, we model the external debt-to-fiscal revenue ratio as a diffusion process for which the stochastic steady state distribution is derived using the properties of Itô diffusion processes.

Keywords: Power-law; Stochastic; growth; External; debt; Emerging; countries (search for similar items in EconPapers)
Date: 2019-06
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-02158001v1
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Citations: View citations in EconPapers (2)

Published in Journal of Macroeconomics, 2019, 60, pp.341-359. ⟨10.1016/j.jmacro.2019.04.002⟩

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Journal Article: Power-law distribution in the external debt-to-fiscal revenue ratios: Empirical evidence and a theoretical model (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02158001

DOI: 10.1016/j.jmacro.2019.04.002

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