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Surges in the shadows: Stock-flow adjustments and public debt spikes

Author

Listed:
  • Andrian, Leandro
  • Rodriguez, Cesar M.
  • Valencia, Oscar M.

Abstract

This paper investigates the drivers of public debt surges in 172 countries from 1980 to 2021, focusing on stock-flow adjustments (SFA)—discrepancies between annual debt changes and budget deficits. Using survival analysis methods, we find that a one percentage point increase in the SFA to GDP ratio raises the hazard rate of a debt surge by 16%, with stronger effects in advanced economies (28%) compared to emerging markets (15%). Conditional on an increasing debt trend, higher SFA significantly increase the probability of a debt spike materializing. We address potential self-selection with an IV approach based on fiscal transparency, emphasizing that accurate SFA estimates are critical for debt sustainability analysis and policy risk assessment. Our findings suggest policy measures to mitigate risks from hidden debt trajectories, including enhanced budgetary transparency, strengthened debt management, more effective fiscal rules, and comprehensive risk assessment frameworks.

Suggested Citation

  • Andrian, Leandro & Rodriguez, Cesar M. & Valencia, Oscar M., 2025. "Surges in the shadows: Stock-flow adjustments and public debt spikes," Emerging Markets Review, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:ememar:v:67:y:2025:i:c:s156601412500055x
    DOI: 10.1016/j.ememar.2025.101306
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    More about this item

    Keywords

    Public debt dynamics; Stock-flow adjustments; Debt spike episodes;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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