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Growth implosions, debt explosions, and my Aunt Marilyn : do growth slowdowns cause public debt crises?

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  • Easterly, william

Abstract

The worldwide slowdown in growth after 1975 was a major negative fiscal shock. Slower growth lowers the present value of tax revenues and primary surpluses and thus makes a given level of debt more burdensome. Most countries failed to adjust to the negative fiscal consequences of the growth implosion, so public-debt-to-GDP ratios exploded. The growth slowdown therefore played an important role in the debt crisis of the middle-income countries in the 1980s, the crisis of the heavily indebted poor countries (HIPCs) in the 1980s and 1990s, and the increased public debt burden of the industrial countries in the 1980s and 1990s. Moreover, the HIPCs'debt problems were worse than elsewhere because, as a result of poor policies, these countries grew more slowly after 1975 than other low-income countries. Econometric tests and fiscal solvency accounting confirm the important role of growth in debt crises.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2531.

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Date of creation: 31 Jan 2001
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Handle: RePEc:wbk:wbrwps:2531

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Keywords: Economic Theory&Research; Strategic Debt Management; Environmental Economics&Policies; Economic Conditions and Volatility; Macroeconomic Management;

References

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  1. Kling, Jeff & Pritchett, Lant, 1994. "Where in the world is population growth bad?," Policy Research Working Paper Series 1391, The World Bank.
  2. Dan Ben-David & David H. Papell, 1998. "Slowdowns And Meltdowns: Postwar Growth Evidence From 74 Countries," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 561-571, November.
  3. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  4. Alan J. Auerbach & William G. Gale, 2000. "Perspectives on the Budget Surplus," NBER Working Papers 7837, National Bureau of Economic Research, Inc.
  5. Fischer, Stanley & Easterly, William, 1990. "The Economic of the Government Budget Constraint," World Bank Research Observer, World Bank Group, World Bank Group, vol. 5(2), pages 127-42, July.
  6. Pritchett, Lant, 2000. "The tyranny of concepts - CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital," Policy Research Working Paper Series 2341, The World Bank.
  7. Pritchett, Lant, 2000. "Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains," World Bank Economic Review, World Bank Group, World Bank Group, vol. 14(2), pages 221-50, May.
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Cited by:
  1. Laura Jaramillo & Cemile Sancak, 2007. "Growth in the Dominican Republic and Haiti," IMF Working Papers 07/63, International Monetary Fund.
  2. Yuanyan Sophia Zhang & Steven Barnett, 2014. "Fiscal Vulnerabilities and Risks from Local Government Finance in China," IMF Working Papers 14/4, International Monetary Fund.
  3. Jean Imbs & Romain Rancière, 2005. "The Overhang Hangover," Swiss Finance Institute Research Paper Series, Swiss Finance Institute 06-03, Swiss Finance Institute.
  4. Ianchovichina, Elena & Kacker, Pooja, 2005. "Growth trends in the developing world : country forecasts and determinants," Policy Research Working Paper Series 3775, The World Bank.
  5. P.Kalonga Stambuli, 2003. "Paris Club Debt Relief, Traditional Frameworks and Implications for Poor Country Debt," International Finance, EconWPA 0301003, EconWPA.
  6. Jean-Claude Berthélemy, 2004. "Bilateralism and multilateralism in official development assistance policies," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla04104, Université Panthéon-Sorbonne (Paris 1).
  7. Calderon, Cesar & Loayza, Norman & Schmidt-Hebbel, Klaus, 2005. "Does openness imply greater exposure ?," Policy Research Working Paper Series 3733, The World Bank.
  8. Jean-Claude Berthélemy, 2005. "Bilateral donors' interest vs. Recipients' development motives in aid allocation : do all donors behave the same ?," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla05001, Université Panthéon-Sorbonne (Paris 1).
  9. Cândida Ferreira, 2014. "Debt and economic growth in the European Union: what causes what?," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2014/08, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.

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