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

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Author Info

  • 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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Related research

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

References

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  1. Auerbach, Alan J. & Gale, William G., 2000. "Perspectives on the Budget Surplus," National Tax Journal, National Tax Association, vol. 53(n. 3), pages 459-72, September.
  2. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
  3. Pritchett, Lant, 2000. "Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains," World Bank Economic Review, World Bank Group, vol. 14(2), pages 221-50, May.
  4. Pritchett, Lant, 2000. "The tyranny of concepts - CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital," Policy Research Working Paper Series 2341, The World Bank.
  5. Ben-David, D. & Papell, D.H., 1996. "Slowdowns and Meltdowns: Post-War Growth Evidence from 74 Countries," Papers 9-96, Tel Aviv.
  6. Kling, Jeff & Pritchett, Lant, 1994. "Where in the world is population growth bad?," Policy Research Working Paper Series 1391, The World Bank.
  7. Fischer, Stanley & Easterly, William, 1990. "The Economic of the Government Budget Constraint," World Bank Research Observer, World Bank Group, vol. 5(2), pages 127-42, July.
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Citations

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Cited by:
  1. Jean-Claude Berthélemy, 2004. "Bilateralism and multilateralism in official development assistance policies," Cahiers de la Maison des Sciences Economiques bla04104, Université Panthéon-Sorbonne (Paris 1).
  2. Laura Jaramillo & Cemile Sancak, 2007. "Growth in the Dominican Republic and Haiti," IMF Working Papers 07/63, International Monetary Fund.
  3. P.Kalonga Stambuli, 2003. "Paris Club Debt Relief, Traditional Frameworks and Implications for Poor Country Debt," International Finance 0301003, EconWPA.
  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. Imbs, Jean & Ranciere, Romain, 2005. "The overhang hangover," Policy Research Working Paper Series 3673, The World Bank.
  6. Calderon, Cesar & Loayza, Norman & Schmidt-Hebbel, Klaus, 2005. "Does openness imply greater exposure ?," Policy Research Working Paper Series 3733, The World Bank.
  7. 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 bla05001, Université Panthéon-Sorbonne (Paris 1).
  8. repec:idb:brikps:48058 is not listed on IDEAS
  9. repec:idb:brikps:48218 is not listed on IDEAS

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