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Fiscal Vulnerability and Financial Crises in Emerging Market Economies

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  • Richard Hemming
  • Axel Schimmelpfennig
  • Michael Kell
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    Abstract

    Fiscal problems have long been considered a central feature of financial--that is, currency, debt, and banking--crises. This paper addresses four questions: What are the fiscal causes of crises? Which fiscal vulnerability indicators help to predict crises? Can fiscal variables explain the severity of crises? And what are the fiscal consequences of crises? Its findings are based on statistical analysis of a large data set of fiscal variables for 29 emerging market economies over 1970-2000 and detailed case studies of 11 emerging market crises during the 1990s that focus on structural and institutional dimensions of fiscal vulnerability.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Occasional Papers with number 218.

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    Length: 131
    Date of creation: 23 May 2003
    Date of revision:
    Handle: RePEc:imf:imfocp:218

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    Keywords: Emerging markets; fiscal variables; public debt; currency crises; fiscal policy; external debt; fiscal vulnerability; short-term debt; current account; debt crises; fiscal model; fiscal deficit; foreign debt; foreign currency debt; currency debt; currency crisis; debt service; current account deficit; central bank; interest expenditure; expenditure; social expenditure; public external debt; long-term debt; banking; structural fiscal; banking crises; fiscal problems; fiscal position; fiscal vulnerabilities; tax administration; public finances; fiscal adjustment; government debt; fiscal indicators; fiscal factors; domestic debt; fiscal stance; sovereign debt; debt crisis; fiscal consequences; fiscal impact; fiscal reforms; debt-service; fiscal data; fiscal tightening; fiscal situation; debt restructuring; external shocks; debt default; tax revenue; government expenditure; currency board; total external debt; external borrowing; loose fiscal policy; structural fiscal reforms; budget deficits; debt ratio; budget deficit; fiscal sustainability; tax base; external financing; debt dynamics; fiscal variable; debt obligations; public sector debt; fiscal deficits; expansionary fiscal; domestic currency; financial crises; fiscal stimulus; external finance; fiscal activities; debt management; fiscal risk; fiscal reform; private debt; tax system; tax policy; balance of payments; private banks; expansionary fiscal policy; debt market; current account balance; commercial creditors; fiscal surplus; fiscal policies; quasi-fiscal activities; external debt service; budget balance; capital account liberalization; expenditure cuts; expenditure control; expenditure management; fiscal relations; liquidity crisis; external obligations; tax compliance; budget constraints; account deficits; fiscal models; debt public; fiscal issues; fiscal measures; intergovernmental fiscal; currency risk; current account deficits; fiscal responsibility law; external public debt; fiscal reporting; fiscal conservatism; fiscal responsibility; debt burden; commercial debt; private sector debt; fiscal transparency; tax collection; debt sustainability; liquidity crises; crisis countries; fiscal expansion; fiscal authorities; public spending; intergovernmental fiscal relations; debt-service burden; tax revenues; tax ratio; debt-service obligations; liquidity injections; fiscal balance; debt servicing; domestic public debt; debt outstanding; tax rates; debt stock; fiscal loosening; fiscal problem; primary expenditure; stock of debt; central government expenditure; net debt; public sector solvency; public finance; public debt management; sovereign default; taxation; bank capital; fiscal targets; fiscal management; debt ratios; debt holders; tight fiscal policy; aggregate fiscal; government deficit; debt restructuring operations; government revenue; government bailouts; fiscal costs; tax breaks; debt rescheduling; international debt; budget management; government spending; foreign borrowing; fiscal imbalances; concessional debt; tax changes; revenue collection; fiscal impulse; fiscal risks; primary deficit; fiscal package; fiscal surpluses; tax collections; discretionary fiscal stimulus; aggregate demand; fiscal rigidities; combination of debt restructuring; total debt stocks; spending cuts; fiscal prudence; expenditure rationalization; weak expenditure control; budget activities; fiscal outlook; fiscal policy response; intergovernmental transfers; expansionary fiscal stance; debt stocks; increase in government expenditure; debt strategies; sovereign debt crises; domestic agents; tax reform; expenditure restraint; fiscal consolidation; activist fiscal policy; expenditure increases; sovereign debt restructuring; budget constraint; multilateral debt; fiscal regime; fiscal cost; ratios of debt; government solvency; external payment; fiscal information; debt buildup; bilateral creditors; current accounts; budget surplus; short-term debts; external indebtedness; external liabilities; low debt; fiscal agent; public expenditure; fiscal support; domestic financial markets; fiscal imbalance; reserve bank; social security spending; prudent fiscal policy; sovereign debt crisis; external debt stock; private creditors; fiscal outcomes; fiscal adjustment efforts; fiscal opportunism; public and publicly guaranteed; fiscal accounts; fiscal activity; expansionary fiscal policies; medium-term debt sustainability; debt maturity; currency mismatches; fiscal institutions; excessive deficits; long-term external debt; debt exchange; fiscal stabilizers; sovereign defaults; fiscal implications; domestic debt market; foreign capital; fiscal systems; balance of payment; government interest expenditure; low debt ratios; private credit; external debt servicing; global liquidity; external funding; foreign exchange market; banking sector; bank stocks; foreign exchange; government finance; banking system; deposit insurance; deficit financing; debt problems; fiscal performance; excessive volatility; official creditors; debt problem; early warning system; taxable income; tax bases; fiscal aggregates; tax cuts; debt structure; fiscal behavior; foreign loans; structural adjustment; asian crisis; corporate sector;

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    Cited by:
    1. World Bank, 2005. "Philippines : From Short-Term Growth to Sustained Development," World Bank Other Operational Studies 8552, The World Bank.
    2. Bjoern Rother & Ivetta Hakobyan & Monica Baumgarten de Bolle, 2006. "The Level and Composition of Public Sector Debt in Emerging Market Crises," IMF Working Papers 06/186, International Monetary Fund.
    3. Luis Ignacio Jácome, 2004. "The Late 1990's Financial Crisis in Ecuador," IMF Working Papers 04/12, International Monetary Fund.
    4. Albert Jaeger & Ludger Schuknecht, 2007. "Boom-Bust Phases in Asset Prices and Fiscal Policy Behavior," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 43(6), pages 45-66, November.
    5. Porzecanski, Arturo C., 2009. "Latin America: The Missing Financial Crisis," MPRA Paper 18780, University Library of Munich, Germany.
    6. Andrew Berg & Eduardo Borensztein & Catherine A. Pattillo, 2004. "Assessing Early Warning Systems," IMF Working Papers 04/52, International Monetary Fund.
    7. Benedict J. Clements & Sanjeev Gupta & Erwin Tiongson & Emanuele Baldacci, 2003. "What Sustains Fiscal Consolidations in Emerging Market Countries?," IMF Working Papers 03/224, International Monetary Fund.
    8. Haizhou Huang & Danyang Xie, 2008. "Fiscal Sustainability and Fiscal Soundness," Annals of Economics and Finance, Society for AEF, vol. 9(2), pages 239-251, November.
    9. Caroline Rijckeghem & Beatrice Weder, 2009. "Political institutions and debt crises," Public Choice, Springer, Springer, vol. 138(3), pages 387-408, March.
    10. Alessandro Zanello & Mark R. Stone & Christopher J. Jarvis & Andrew Berg, 2003. "Re-Establishing Credible Nominal Anchors After a Financial Crisis," IMF Working Papers 03/76, International Monetary Fund.
    11. Garima Vasishtha & Taimur Baig & Manmohan S. Kumar & Edda Zoli, 2006. "Fiscal and Monetary Nexus in Emerging Market Economies," IMF Working Papers 06/184, International Monetary Fund.
    12. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.

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