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Analysing the Sustainability of Fiscal Deficits in Developing Countries

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  • John T. Cuddington

    (Georgetown University)

Abstract

This paper surveys the recent literature analysing fiscal deficit sustainability, most of which focuses on the U.S. and other industrial countries, in an attempt to assess its potential usefulness in the developing country context. Both the accounting approach and the present value constraint (PVC) approach are considered. Typically, sustainability analyses for developing countries involve issues that are not particularly important in the industrial country context. Reliance on seigniorage to finance deficits is often quantitatively much more important, although its use varies widely across LDCs. The distinction between domestic and foreign-currency borrowing is central; concessional lending and grants may also make an important contribution to fiscal finance. We consider generalizations of the PVC approach to situations where money-financing of deficits is used and concessional financing is available. The simultaneous presence of domestic and foreign debt, which characterizes a growing number of LDCs, are also discussed.

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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 9706001.

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Length: 46 pages
Date of creation: 04 Jun 1997
Date of revision:
Handle: RePEc:wpa:wuwpif:9706001

Note: Type of Document - WordPerfect; prepared on IBM PC ; to print on HP Laserjet; pages: 46 ; figures: included. written with the assistance of Shihua Lu, PhD candidate at Georgetown.
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Web page: http://128.118.178.162

Related research

Keywords: F34 (International Lending and Debt Problems); E62 (Fiscal Policy) O23 (Fiscal and Monetary Policy in Development) O011 (Macroeconomic Analyses of Economic Development);

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Citations

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Cited by:
  1. Gunter, Bernhard & Wodon, Quentin, 2008. "Analyzing Debt Sustainability: An Application of SimSIP Debt for Paraguay," MPRA Paper 11076, University Library of Munich, Germany.
  2. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
  3. Cassimon, Denis & Moreno-Dodson, Blanca & Wodon, Quentin, 2008. "Debt Sustainability for Low-Income Countries: A Review of Standard and Alternative Concepts," MPRA Paper 11077, University Library of Munich, Germany.
  4. Pablo Mendieta Ossio & Hugo Rodriguez Gonzales, 2005. "Interacción de la política fiscal con la política monetaria en el MERCOSUR y países asociados," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 8(1), pages 49-97, December.
  5. Polito, Vito & Wickens, Mike, 2012. "A model-based indicator of the fiscal stance," European Economic Review, Elsevier, vol. 56(3), pages 526-551.
  6. Annalisa Fedelino & Alina Kudina, 2003. "Fiscal Sustainability in African HIPC Countries," IMF Working Papers 03/187, International Monetary Fund.
  7. António Afonso, 2000. "Fiscal policy sustainability: some unpleasant European evidence," Working Papers Department of Economics 2000/12, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  8. M. Arnone & A. F. Presbitero, 2007. "External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 115(2), pages 187-213.
  9. Sène, Babacar, 2004. "Impact du fardeau virtuel de la dette sur le taux de change réel d’équilibre des pays en développement : un modèle théorique," Economics Papers from University Paris Dauphine 123456789/6259, Paris Dauphine University.
  10. Marco Arnone & Luca Bandiera & Andrea Presbitero, 2005. "External Debt Sustainability: Theory and Empirical Evidence," International Finance 0512007, EconWPA.
  11. Carrera, Claudia Martínez & Vergara, Rodrigo, 2012. "Fiscal Sustainability: The Impact of Real Exchange Rate Shocks on Debt Valuation, Interest Rates and GDP Growth," World Development, Elsevier, vol. 40(9), pages 1762-1783.

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