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The Global Dimension to Fiscal Sustainability

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Author Info
Joseph P. Byrne
Norbert Fiess
Ronald MacDonald

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Abstract

This paper examines the issue of fiscal sustainability in emerging market countries and industrial countries. We highlight the importance of the time series properties of the primary surplus and debt, and find evidence of a positive long run relationship. Consequently we emphasise, that especially for emerging markets, it is important to recognise the implications of global capital market shocks for fiscal sustainability, a relationship which has hitherto been ignored in the empirical literature. Using a factor model we demonstrate that the relationship between deficit and debt is conditional upon a global factor and we suggest that this global factor is related to worldwide liquidity. We also demonstrate that this acts as a constraint on emerging market economies’ fiscal policy.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2008_10.

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Date of creation: Mar 2008
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Handle: RePEc:gla:glaewp:2008_10

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Related research
Keywords: Fiscal Policy; Sustainability.;

Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management

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