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Discretionary fiscal policy and sovereign risk

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  • Gabriel Caldas Montes

    (Fluminense Federal University and National Council for Scientific and Technological Development)

  • Iven Silva Valpassos

    (Fluminense Federal University)

Abstract

The quality and magnitude of public spending is a central concern for those who want to have an assessment of the risk implied in the sovereign bonds of a country. In this paper, we investigate the effect that discretionary fiscal policy, measured by the Fiscal Impulse, may have on the sovereign risk. Using data comprising the period from March 2004 to December 2016, we have found evidence that the adoption of discretionary fiscal policies affects the Brazilian sovereign credit risk. Additionally, there is evidence that for the period under analysis, the Brazilian sovereign risk was determined by internal factors and not by global conditions.

Suggested Citation

  • Gabriel Caldas Montes & Iven Silva Valpassos, 2018. "Discretionary fiscal policy and sovereign risk," Economics Bulletin, AccessEcon, vol. 38(3), pages 1343-1365.
    • Handle: RePEc:ebl:ecbull:eb-18-00081
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    Cited by:

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    3. Gabriel Caldas Montes & Paulo Henrique Lourenço Luna, 2022. "Do fiscal opacity, fiscal impulse, and fiscal credibility affect disagreement about economic growth forecasts? Empirical evidence from Brazil considering the period of political instability and presid," Review of Development Economics, Wiley Blackwell, vol. 26(4), pages 2356-2393, November.

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    More about this item

    Keywords

    fiscal impulse; sovereign risk; Credit Default Swap; EMBI;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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