IDEAS home Printed from https://ideas.repec.org/a/col/000107/002030.html
   My bibliography  Save this article

Assessing Fiscal Sustainability With Alternative Methodologies

Author

Listed:
  • HUMBERTO MORA ALVAREZ

    ()

Abstract

This paper applies and analyzes three alternative methodologies to assess fiscal sustainability of the central government´s debt, using as illustrative examples the cases of Colombia and Costa Rica: The IMF´s (2003 a); the Mendoza & Oviedo´s (2003); and a new methodology that incorporates the effects of the structural and cyclical components of output, government expenditures, and revenues, on the evolution of debt, with a particular indicator of debt sustainability based on the structural components, as long as the cyclical component of debt balances out along the full cycle. In addition, a methodology to estimate the probability of default of debt and to treat the interest rate as a function of that probability is developed and applied. The common characteristic of the three approaches is the explicit incorporation of uncertainty about the behavior of the variables determining the evolution of the government´s debt, and the formulation of specific indicators that capture the effect of volatility in the economy, as well as their incidence on fiscal and financial variables. In addition, the three methodologies applied use specific procedures to estimate the expected value of the relevant variables. The results, particularly those expressed in terms of the probabilities of default, constitute useful analytical tools for policy makers to foresee the wideness of the period available to undertake corrective fiscal policies, which are explicitly characterized along the paper.

Suggested Citation

  • Humberto Mora Alvarez, 2004. "Assessing Fiscal Sustainability With Alternative Methodologies," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 22(46-1), pages 82-145, December.
  • Handle: RePEc:col:000107:002030
    as

    Download full text from publisher

    File URL: http://www.banrep.gov.co/docum/ensayos/pdf/espe_046-2.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Humberto Mora A., 2002. "Sostenibilidad de la deuda del gobierno en los países miembros del FLAR," COYUNTURA ECONÓMICA, FEDESARROLLO, December.
    2. World Bank, 2003. "Brazil : Stability for Growth and Poverty Reduction," World Bank Other Operational Studies 14881, The World Bank.
    3. P. Marcelo Oviedo & Enrique Mendoza, 2004. "Public Debt, Fiscal Solvency, and Macroeconomic Uncertainty in Emerging Markets: The Tale of the Tormented Insurer," Econometric Society 2004 North American Summer Meetings 647, Econometric Society.
    4. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
    5. Ernesto Talvi & Carlos A. Végh, 1998. "Fiscal Policy Sustainability: A Basic Framework," Research Department Publications 3070, Inter-American Development Bank, Research Department.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alexis CRUZ-RODRÍGUEZ, 2014. "Assessing fiscal sustainability in some selected countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(6(595)), pages 7-22, June.
    2. Hernán Rincón & Jorge Ramos & Ignacio Lozano, 2004. "Crisis Fiscal Actual: Diagnóstico Y Recomendaciones," BORRADORES DE ECONOMIA 002244, BANCO DE LA REPÚBLICA.

    More about this item

    Keywords

    DEBT SUSTAINABILITY; MACRECONOMIC VOLATILITY; EXPECTED VALUES; MARKOV'S CHAINS;

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000107:002030. 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: (Espe). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.