International Evidenceon Fiscal Solvency: Is Fiscal Policy "Responsible"?

Enrique Mendoza and Jonathan Ostry

No 2007/056, IMF Working Papers from International Monetary Fund

Abstract: This paper looks at fiscal solvency and public debt sustainability in both emerging market and advanced countries. Evidence of fiscal solvency, in the form of a robust positive conditional relationship between public debt and the primary fiscal balance, is established in both groups of countries. Evidence of fiscal solvency is much weaker, however, at high debt levels. These findings suggest that many industrial and emerging market economies, including several where fiscal solvency has been the subject of recent debates, appear to conduct fiscal policy responsibly. Yet our results cannot reject the hypothesis of fiscal insolvency in groups of countries with high debt ratios.

Keywords: WP; emerging market; government purchase; growth rate; fiscal solvency; fiscal policy; debt sustainability; solvency condition; budget constraint; debt country; government purchases data; Fiscal stance; Solvency; Africa (search for similar items in EconPapers)
Pages: 30
Date: 2007-03-01
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Citations: View citations in EconPapers (27)

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Journal Article: International evidence on fiscal solvency: Is fiscal policy "responsible"? (2008)
Working Paper: International Evidence on Fiscal Solvency: Is Fiscal Policy "Responsible"? (2007)
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