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A modern history of fiscal prudence and profligacy

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  • Mauro, Paolo
  • Romeu, Rafael
  • Binder, Ariel
  • Zaman, Asad

Abstract

Drawing on a newly collected historical dataset of fiscal stocks and flows, we analyze the determinants of variation, both across countries and over time, in how fiscal policy responds to increases in the government debt-to-GDP ratio. The fiscal data comprise revenues, primary expenditures, interest bill, and government debt for 55 countries for up to two hundred years. The policy response (increase in the primary fiscal balance in response to debt increases) is found to be significantly weaker when sovereign borrowing costs are low, inflation is high, and potential economic growth worsens unexpectedly. These results are robust to political factors.

Suggested Citation

  • Mauro, Paolo & Romeu, Rafael & Binder, Ariel & Zaman, Asad, 2015. "A modern history of fiscal prudence and profligacy," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 55-70.
  • Handle: RePEc:eee:moneco:v:76:y:2015:i:c:p:55-70
    DOI: 10.1016/j.jmoneco.2015.07.003
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