Advanced Search
MyIDEAS: Login

Fiscal Adjustments and the Probability of Sovereign Default

Contents:

Author Info

  • Schaltegger, Christoph
  • Weder, Martin

Abstract

Based on probit estimates, this paper analyzes the effects of fiscal consolidation on the proba-bility of sovereign defaults in the short run. Using a panel of 104 developing countries from 1980 to 2009 and controlling for various economic, fiscal and political factors, we find that fiscal adjustments in general do not significantly reduce the probably of default even if they are large. Instead, the composition of budget consolidation is decisive in reducing default risk. In contrast to industrialized countries, expenditure based adjustments are not successful while revenue based adjustments lower the probability of default in the following year by 33 to 56 percent. This finding also holds when economic growth is low or government debt is high as well as when IMF lending is taken into account. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/79979/1/VfS_2013_pid_364.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79979.

as in new window
Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:zbw:vfsc13:79979

Contact details of provider:
Email:
Web page: http://www.socialpolitik.org/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Richard M. Bird & Jorge Martinez-Vazquez & Benno Torgler, 2004. "Societal Institutions and Tax Effort in Developing Countries," CREMA Working Paper Series 2004-21, Center for Research in Economics, Management and the Arts (CREMA).
  2. Michael Tomz & Mark L. J. Wright, 2007. "Do Countries Default In "Bad Times"?," CAMA Working Papers 2007-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," NBER Working Papers 13882, National Bureau of Economic Research, Inc.
  4. Keen, Michael & Lockwood, Ben, 2007. "The Value Added Tax : Its Causes and Consequences," The Warwick Economics Research Paper Series (TWERPS) 801, University of Warwick, Department of Economics.
  5. Andrew K. Rose, 2002. "One Reason Countries Pay Their Debts: Renegotiation and International Trade," Working Papers 042002, Hong Kong Institute for Monetary Research.
  6. Kiichi Tokuoka, 2010. "The Outlook for Financing Japan’s Public Debt," IMF Working Papers 10/19, International Monetary Fund.
  7. Eduardo Borensztein & Ugo Panizza, 2006. "Do Sovereign Defaults Hurt Exporters?," IDB Publications 6704, Inter-American Development Bank.
  8. Baunsgaard, Thomas & Keen, Michael, 2010. "Tax revenue and (or?) trade liberalization," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 563-577, October.
  9. Andreas Buehn & Friedrich Schneider, 2012. "Shadow economies around the world: novel insights, accepted knowledge, and new estimates," International Tax and Public Finance, Springer, vol. 19(1), pages 139-171, February.
  10. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 651-98, September.
  11. Kohlscheen, Emanuel, 2006. "Why are there Serial Defaulters? Evidence from Constitutions," The Warwick Economics Research Paper Series (TWERPS) 755, University of Warwick, Department of Economics.
  12. R. Gaston Gelos, Ratna Sahay and Guido Sandleris, 2008. "Sovereign Borrowing by Developing Countries: What Determines Market Access?," Business School Working Papers 2008-02, Universidad Torcuato Di Tella.
  13. Daniel Leigh & Andrea Pescatori & Jaime Guajardo, 2011. "Expansionary Austerity New International Evidence," IMF Working Papers 11/158, International Monetary Fund.
  14. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  15. Paolo Manasse & Nouriel Roubini, 2005. "'Rules of Thumb' for Sovereign Debt Crises," International Finance 0509003, EconWPA.
  16. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
  17. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," NBER Working Papers 15639, National Bureau of Economic Research, Inc.
  18. Emanuele Baldacci & Benedict Clements & Sanjeev Gupta & Carlos Mulas-Granados, 2006. "The Phasing of Fiscal Adjustments: What Works in Emerging Market Economies?," Review of Development Economics, Wiley Blackwell, vol. 10(4), pages 612-631, November.
  19. Ugo Panizza & Eduardo Levy Yeyati, 2006. "The Elusive Costs of Sovereign Defaults," IDB Publications 6713, Inter-American Development Bank.
  20. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
  21. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "From Financial Crash to Debt Crisis," NBER Working Papers 15795, National Bureau of Economic Research, Inc.
  22. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
  23. Miguel Messmacher & Mark Kruger, 2004. "Sovereign Debt Defaults and Financing Needs," IMF Working Papers 04/53, International Monetary Fund.
  24. Markus Jorra, 2010. "The Effect of IMF Lending on the Probability of Sovereign Debt Crises," MAGKS Papers on Economics 201026, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  25. Rong Qian & Carmen M. Reinhart & Kenneth Rogoff, . "On Graduation from Default, Inflation and Banking Crises: Elusive or Illusion?," Working Paper 14879, Harvard University OpenScholar.
  26. Rodney Ramcharan, 2003. "Reputation, Debt, and Policy Conditionality," IMF Working Papers 03/192, International Monetary Fund.
  27. Eduardo Borensztein & Ugo Panizza, 2009. "The Costs of Sovereign Default," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 683-741, November.
  28. Sanjeev Gupta & Emanuele Baldacci & Benedict Clements & Erwin R. Tiongson, 2005. "What sustains fiscal consolidations in emerging market countries?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(4), pages 307-321.
  29. Federico Sturzenegger & Jeromin Zettelmeyer, 2007. "Debt Defaults and Lessons from a Decade of Crises," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262195534, January.
  30. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
  31. Sebastian M. Saiegh, 2009. "Coalition Governments And Sovereign Debt Crises," Economics and Politics, Wiley Blackwell, vol. 21(2), pages 232-254, 07.
  32. Caroline Rijckeghem & Beatrice Weder, 2009. "Political institutions and debt crises," Public Choice, Springer, vol. 138(3), pages 387-408, March.
  33. Carmen M. Reinhart & M. Belen Sbrancia, 2011. "The Liquidation of Government Debt," NBER Working Papers 16893, National Bureau of Economic Research, Inc.
  34. Stéphanie Guichard & Mike Kennedy & Eckhard Wurzel & Christophe André, 2007. "What Promotes Fiscal Consolidation: OECD Country Experiences," OECD Economics Department Working Papers 553, OECD Publishing.
  35. Graham Bird, 2001. "IMF Programmes: Is there a conditionality Laffer Curve?," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 2(2), pages 29-49, April.
  36. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  37. Micahael Tomz & Gary King & Langche Zeng, . "ReLogit: Rare Events Logistic Regression," Journal of Statistical Software, American Statistical Association, vol. 8(i02).
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:vfsc13:79979. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.