Debt Affordability in Developed and Emerging Market Economies: The Role of Fiscal Rules

Oscar Valencia (), Jose Gomez-Gonzalez and Gustavo Sánchez

No 12235, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: This paper studies the effect of fiscal rules on debt affordability in a large set of developed and emerging market economies, using a panel data model which allows the inclusion of weakly exogenous regressors, and which deals appropriately with cross-sectional dependence. The results show a positive and significant effect of fiscal rule implementation on public debt affordability which is robust to various model specifications. The effect is stronger for emerging market economies which benefit from the implementation of any fiscal rule. In contrast, developed countries benefit only from high-quality fiscal rules. The findings have important policy implications for fiscal management, especially in emerging market economies.

Keywords: cross-sectional dependence; debt affordability; weakly exogenous regressors (search for similar items in EconPapers)
JEL-codes: C33 F34 G15 (search for similar items in EconPapers)
Date: 2022-05
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Journal Article: Debt affordability in developed and emerging market economies: the role of fiscal rules (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:12235

DOI: 10.18235/0004267

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