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The global dimension to fiscal sustainability

  • Byrne, Joseph P.
  • Fiess, Norbert
  • MacDonald, Ronald

This paper provides a new perspective of fiscal sustainability and financial globalization in emerging and industrial countries. We highlight the importance of global capital market shocks for fiscal sustainability, a relationship which has hitherto been ignored in the empirical literature. Using a factor model we demonstrate that the relationship between deficit and debt is conditional upon a global factor and we suggest that this global factor is related to world-wide liquidity. We also demonstrate that this acts as a constraint on emerging market economies' fiscal policy.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 33 (2011)
Issue (Month): 2 (June)
Pages: 137-150

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:2:p:137-150
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