Fiscal Crises

Kerstin Gerling, Paulo Medas, Tigran Poghosyan, Juan Farah-Yacoub and Yizhi Xu

No 2017/086, IMF Working Papers from International Monetary Fund

Abstract: A key objective of fiscal policy is to maintain the sustainability of public finances and avoid crises. Remarkably, there is very limited analysis on fiscal crises. This paper presents a new database of fiscal crises covering different country groups, including low-income developing countries (LIDCs) that have been mostly ignored in the past. Countries faced on average two crises since 1970, with the highest frequency in LIDCs and lowest in advanced economies. The data sheds some light on policies and economic dynamics around crises. LIDCs, which are usually seen as more vulnerable to shocks, appear to suffer the least in crisis periods. Surprisingly, advanced economies face greater turbulence (growth declines sharply in the first two years of the crisis), with half of them experiencing economic contractions. Fiscal policy is usually procyclical as countries curtail expenditure growth when economic activity weakens. We also find that the decline in economic growth is magnified if accompanied by a financial crisis.

Keywords: WP; fiscal crisis; crisis episode; banking crisis dummy; real GDP; sovereign debt default; economic growth; twin crises; public debt debt ratio; crisis run-up; crisis onset; Debt default; Fiscal consolidation; Credit; Global (search for similar items in EconPapers)
Pages: 43
Date: 2017-04-03
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Citations: View citations in EconPapers (2)

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Journal Article: Fiscal crises (2018)
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