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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

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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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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;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alan J. Auerbach & William G. Gale, 2000. "Perspectives on the Budget Surplus," NBER Working Papers 7837, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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  3. Pritchett, Lant, 2000. "Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains," World Bank Economic Review, Oxford University Press, vol. 14(2), pages 221-50, May. [Downloadable!]
  4. Pritchett, Lant, 2000. " The Tyranny of Concepts: CUDIE (Cumulated, Depreciated, Investment Effort) Is Not Capital," Journal of Economic Growth, Springer, vol. 5(4), pages 361-84, December. [Downloadable!] (restricted)
    Other versions:
  5. Fischer, Stanley & Easterly, William, 1990. "The Economic of the Government Budget Constraint," World Bank Research Observer, Oxford University Press, vol. 5(2), pages 127-42, July.
  6. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February. [Downloadable!] (restricted)
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  7. Kling, Jeff & Pritchett, Lant, 1994. "Where in the world is population growth bad?," Policy Research Working Paper Series 1391, The World Bank. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Imbs, Jean & Ranciere, Romain, 2005. "The overhang hangover," Policy Research Working Paper Series 3673, The World Bank. [Downloadable!]
    Other versions:
  2. 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). [Downloadable!]
  3. Cemile Sancak & Laura Jaramillo, 2007. "Growth in the Dominican Republic and Haiti: Why has the Grass Been Greener on One Side of Hispaniola," IMF Working Papers 07/63, International Monetary Fund. [Downloadable!]
  4. P.Kalonga Stambuli, 2003. "Paris Club Debt Relief, Traditional Frameworks and Implications for Poor Country Debt," International Finance 0301003, EconWPA. [Downloadable!]
  5. Calderon, Cesar & Loayza, Norman & Schmidt-Hebbel, Klaus, 2005. "Does openness imply greater exposure ?," Policy Research Working Paper Series 3733, The World Bank. [Downloadable!]
  6. 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). [Downloadable!]
  7. Ianchovichina, Elena & Kacker, Pooja, 2005. "Growth trends in the developing world : country forecasts and determinants," Policy Research Working Paper Series 3775, The World Bank. [Downloadable!]
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