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What sustains fiscal consolidations in emerging market countries?

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Author Info

  • Sanjeev Gupta

    (International Monetary Fund, USA)

  • Emanuele Baldacci

    (International Monetary Fund, USA)

  • Benedict Clements

    (International Monetary Fund, USA)

  • Erwin R. Tiongson

    (International Monetary Fund, USA)

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    Abstract

    This paper examines the factors affecting the persistence of fiscal consolidation in 25 emerging market countries during 1980-2001. It proposes a new approach for defining spells of fiscal consolidation. The results indicate that the probability of ending a fiscal adjustment is affected by the legacy of previous fiscal failures, the size of the deficit, the composition of spending and level of total revenues. There is also some evidence that the initial debt stock, exchange rate developments, inflation and the unemployment rate have an impact on the persistence of adjustments. Copyright © 2005 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/ijfe.274
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 10 (2005)
    Issue (Month): 4 ()
    Pages: 307-321

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    Handle: RePEc:ijf:ijfiec:v:10:y:2005:i:4:p:307-321

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    1. Ardagna, Silvia, 2001. " Fiscal Policy Composition, Public Debt, and Economic Activity," Public Choice, Springer, vol. 109(3-4), pages 301-25, December.
    2. von Hagen, Jurgen & Hughes Hallett, Andrew & Strauch, Rolf, 2002. "Budgetary Consolidation in Europe: Quality, Economic Conditions, and Persistence," Journal of the Japanese and International Economies, Elsevier, vol. 16(4), pages 512-535, December.
    3. Vito Tanzi & Howell H. Zee, 1996. "Fiscal Policy and Long-Run Growth," IMF Working Papers 96/119, International Monetary Fund.
    4. Reyes Maroto Illera & Carlos Mulas-Granados, . "Duration of Fiscal Consolidations in the European Union," Working Papers 2001-19, FEDEA.
    5. Francesco Giavazzi & Tullio Jappelli & Marco Pagano, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," NBER Working Papers 7460, National Bureau of Economic Research, Inc.
    6. Perotti, Roberto, 1996. "Fiscal Consolidation in Europe: Composition Matters," American Economic Review, American Economic Association, vol. 86(2), pages 105-10, May.
    7. Perotti, Roberto, 1998. " The Political Economy of Fiscal Consolidations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 367-94, March.
    8. Heylen, Freddy & Everaert, Gerdie, 2000. " Success and Failure of Fiscal Consolidation in the OECD: A Multivariate Analysis," Public Choice, Springer, vol. 105(1-2), pages 103-24, October.
    9. Alberto Alesina & Silvia Ardagna, 1998. "Tales of fiscal adjustment," Economic Policy, CEPR & CES & MSH, vol. 13(27), pages 487-545, October.
    10. Robert F. Westcott & C. John McDermott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Working Papers 96/59, International Monetary Fund.
    11. Baldacci, Emanuele & Hillman, Arye L. & Kojo, Naoko C., 2004. "Growth, governance, and fiscal policy transmission channels in low-income countries," European Journal of Political Economy, Elsevier, vol. 20(3), pages 517-549, September.
    12. Ardagna, Silvia & Alesina, Alberto, 1998. "Tales of Fiscal Adjustment," Scholarly Articles 2579822, Harvard University Department of Economics.
    13. Ali Bayar, 2001. "Entry and exit dynamics of excessive deficits in the European Union," ULB Institutional Repository 2013/13494, ULB -- Universite Libre de Bruxelles.
    14. Sanjeev Gupta & Benedict Clements & Emanuele Baldacci & Carlos Mulas-Granados, 2004. "The persistence of fiscal adjustments in developing countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(4), pages 209-212.
    15. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
    16. A.J. Hughes Hallett & Peter McAdam, 2003. "Deficit Targeting Strategies: Fiscal Consolidation and the Probability Distribution of Deficits under the Stability Pact," Journal of Common Market Studies, Wiley Blackwell, vol. 41(3), pages 421-444, 06.
    17. Luisa Lambertini & Jose Tavares, 2003. "Exchange Rates and Fiscal Adjustments: Evidence from the OECD and Implications for EMU," Boston College Working Papers in Economics 576, Boston College Department of Economics.
    18. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
    19. Richard Hemming & Axel Schimmelpfennig & Michael Kell, 2003. "Fiscal Vulnerability and Financial Crises in Emerging Market Economies," IMF Occasional Papers 218, International Monetary Fund.
    20. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
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    22. Soojin Moon & Ales Bulir, 2003. "Do IMF-Supported Programs Help Make Fiscal Adjustment More Durable?," IMF Working Papers 03/38, International Monetary Fund.
    23. Ardagna, Silvia, 2001. "Fiscal Policy Composition, Public Debt, and Economic Activity," Scholarly Articles 2579823, Harvard University Department of Economics.
    24. Hjelm, Goran, 2002. " Effects of Fiscal Contractions: The Importance of Preceding Exchange Rate Movements," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 423-41, September.
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    Cited by:
    1. Christoph A. Schaltegger & Martin Weder, 2013. "Fiscal Adjustments and the Probability of Sovereign Default," CREMA Working Paper Series 2013-06, Center for Research in Economics, Management and the Arts (CREMA).
    2. Sanjeev Gupta & Amine Mati & Emanuele Baldacci, 2008. "Is it (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets," IMF Working Papers 08/259, International Monetary Fund.
    3. Mohamed Fenira, 2014. "Democracy: A Determinant Factor in Reducing Inflation," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 363-375.
    4. Benedict J. Clements & Sanjeev Gupta & Emanuele Baldacci & Carlos Mulas-Granados, 2004. "Front-Loaded or Back-Loaded Fiscal Adjustments," IMF Working Papers 04/157, International Monetary Fund.
    5. Gnangnon, Sèna Kimm, 2014. "The Effect of Development Aid Unpredictability and Migrants’ Remittances on Fiscal Consolidation in Developing Countries," World Development, Elsevier, vol. 54(C), pages 168-190.
    6. Sanjeev Gupta & Alejandro Simone & Alex Segura-Ubiergo, 2006. "New Evidenceon Fiscal Adjustment and Growth in Transition Economies," IMF Working Papers 06/244, International Monetary Fund.
    7. Murtaza H. Syed & Michael Skaarup & Tarhan Feyzioglu, 2008. "Addressing Korea's Long-Term Fiscal Challenges," IMF Working Papers 08/27, International Monetary Fund.
    8. World Bank, 2008. "Nicaragua : Public Expenditure Review 2001-2006," World Bank Other Operational Studies 8090, The World Bank.
    9. Sanjeev Gupta & Carlos Mulas-Granados & Emanuele Baldacci, 2009. "How Effective is Fiscal Policy Response in Systemic Banking Crises?," IMF Working Papers 09/160, International Monetary Fund.
    10. Ali Bayar & Bram Smeets, 2009. "Government Deficits in the European Union: An Analysis of Entry and Exit Dynamics," CESifo Working Paper Series 2703, CESifo Group Munich.
    11. Robert Lavigne, 2006. "The Institutional and Political Determinants of Fiscal Adjustment," Working Papers 06-1, Bank of Canada.
    12. Mati, Amine & Thornton, John, 2008. "The exchange rate and fiscal consolidation episodes in emerging market economies," Economics Letters, Elsevier, vol. 100(1), pages 115-118, July.

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