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Does economic complexity reduce the probability of a fiscal crisis?

Jose Gomez-Gonzalez (), Jorge Uribe () and Oscar Valencia ()

No 202218, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: Higher economic complexity of a country reduces the probability of suffering a fiscal crisis between 46% and 57%. Along with institutional factors, complexity is shown to be sufficient to describe the risk of facing episodes of fiscal distress. On the contrary, the role of variables frequently emphasized by the literature and policy markets, such as the debt-output ratio, real growth, inflation, terms of trade or fiscal balance, is very modest or insignificant. Development strategies that aim for greater economic complexity also promise to reduce countries’ fiscal vulnerability.

Keywords: Debt-sustainability; Sovereign-crises; Fiscal-revenues; Duration analysis; Debt-to-GDP ratio. JEL classification: E02; E44; E62; F34. (search for similar items in EconPapers)
Pages: 30 pages
Date: 2022-11, Revised 2022-11
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