Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies
AbstractHow high can public debt rise without compromising fiscal solvency? We answer this question using a stochastic ability-to-pay model of sovereign default in which risk-neutral investors lend to a government that displays âfiscal fatigue,â because its ability to increase primary balances cannot keep pace with rising debt. As a result, the government faces an endogenous debt limit beyond which debt cannot be rolled-over. Using data for 23 advanced economies over 1970â2007, we find evidence of a fiscal reaction function with these features, and use it to compute âfiscal space,â defined as the difference between projected debt ratios and debt limits.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): (2013)
Issue (Month): (02)
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Other versions of this item:
- Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2011. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," NBER Working Papers 16782, National Bureau of Economic Research, Inc.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Default Risk and Income Fluctuations in Emerging Economies,"
American Economic Review,
American Economic Association, vol. 98(3), pages 690-712, June.
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