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Can fiscal rules improve financial market access for developing countries?

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  • Pegdéwendé Nestor Sawadogo

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UCA [2017-2020] - Université Clermont Auvergne [2017-2020] - CNRS - Centre National de la Recherche Scientifique)

Abstract

A number of countries have introduced fiscal rules to deter fiscal profligacy, enhance the credibility of fiscal policy, and reduce borrowing costs. In this paper, we examine the outcome of fiscal rules in terms of improving financial market access for developing countries. We use entropy balancing and various propensity score matching. We find that the adoption of fiscal rules reduces sovereign bond spreads and increases sovereign debt ratings for a sample of 36 developing countries, which are part of the JP Morgan Emerging Markets Bond Index Global (EMBIG), for the period 1993-2014. We explain this finding by the effect of fiscal rules on the credibility of a country's fiscal policy: more credible governments are rewarded in the international financial markets by low sovereign bond spreads and high sovereign debt ratings. These results are robust to a wide set of alternative specifications. We also show that this favorable effect is sensitive to several country structural characteristics. Our findings confirm that the adoption and sound implementation of fiscal rules is an instrument for policy makers to improve developing countries’ financial market access.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Pegdéwendé Nestor Sawadogo, 2020. "Can fiscal rules improve financial market access for developing countries?," Post-Print hal-02884580, HAL.
    • Handle: RePEc:hal:journl:hal-02884580
    DOI: 10.1016/j.jmacro.2020.103214
    Note: View the original document on HAL open archive server: https://hal.science/hal-02884580v1
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    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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