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The Consequences of Banking Crises for Public Debt

  • Davide Furceri

    (OCDE - Organisation de coopération et de développement économiques - OCDE)

  • Aleksandra Zdzienicka-Durand

    (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS)

The aim of this paper is to assess the consequences of banking crises for public debt. Using an unbalanced panel of 154 countries from 1980 to 2006, the paper shows that banking crises are associated with a significant and long- lasting increase in government debt. The effect is a function of the severity of the crisis. In particular, we find that for severe crises, comparable to the most recent one in terms of output losses, banking crises are followed by a medium-term increase of about 37 percentage points in the government gross debt-to-GDP ratio. We also find that the debt ratio increased more in countries with a worse initial fiscal position (in terms of the gross debt-to-GDP ratio) and with a higher share of foreign debt.

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Paper provided by HAL in its series Post-Print with number halshs-00497925.

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Date of creation: 2010
Date of revision:
Publication status: Published in Working paper GATE 2010-15. 2010
Handle: RePEc:hal:journl:halshs-00497925
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  17. Davide Furceri & Aleksandra Zdzienicka-Durand, 2010. "Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables," Post-Print halshs-00491089, HAL.
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