The fiscal policy response to public debt in developing countries Oronde Small, Leanora Brown, Gustavo Canavire‐Bacarreza
By: Small, Oronde
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Contributor(s): Brown, Leanora | Canavire Bacarreza, Gustavo.
Material type: 
ArticlePublisher: 2020Subject(s): ESTABILIZACION ECONOMICA | HACIENDA PUBLICA | DEFICIT PUBLICO | DEUDA PUBLICA | PAISES EN DESARROLLOOnline resources: Click here to access online
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Contemporary Economic Policy volume 38, number 1, january 2020, p. 155-165Summary: Theoretical models on fiscal sustainability hypothesize that indebted governments can lower their current debt by generating future primary surpluses, ceteris paribus . While both developed and developing countries struggle with the issue of debt stabilization, the latter, in particular face heightened sensitivity from creditors, which provides them an impetus to respond more strongly to stabilize their debt. Based on a panel of 53 developing countries, we examine the fiscal response of these countries to changes in their debt‐to‐gross domestic product ratio. We find evidence of a positive relationship between the debt and primary surplus and that countries adjust along both the revenue and expenditure margins at roughly the same rate. (JEL E62, H50, O11)
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Theoretical models on fiscal sustainability hypothesize that indebted governments can lower their current debt by generating future primary surpluses, ceteris paribus . While both developed and developing countries struggle with the issue of debt stabilization, the latter, in particular face heightened sensitivity from creditors, which provides them an impetus to respond more strongly to stabilize their debt. Based on a panel of 53 developing countries, we examine the fiscal response of these countries to changes in their debt‐to‐gross domestic product ratio. We find evidence of a positive relationship between the debt and primary surplus and that countries adjust along both the revenue and expenditure margins at roughly the same rate. (JEL E62, H50, O11)
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