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Fiscal rules and sovereign default

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  • Alfaro, Laura
  • Kanczuk, Fabio

Abstract

Debt sustainability concerns in emerging markets (EMEs) highlight the critical need for effective fiscal rules, particularly in an era of financial fragmentation. This paper examines fiscal rules using a sovereign debt model incorporating present-biased government behavior, a key driver of excessive debt in EMEs. Welfare analysis underscores the effectiveness of simple debt ceilings in mitigating default risks and enhancing financial stability.

Suggested Citation

  • Alfaro, Laura & Kanczuk, Fabio, 2026. "Fiscal rules and sovereign default," Emerging Markets Review, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:ememar:v:70:y:2026:i:c:s1566014125001293
    DOI: 10.1016/j.ememar.2025.101380
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • 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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