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International Evidenceon Fiscal Solvency: Is Fiscal Policy "Responsible"?

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  • Mr. Enrique G. Mendoza
  • Mr. Jonathan David Ostry

Abstract

This paper looks at fiscal solvency and public debt sustainability in both emerging market and advanced countries. Evidence of fiscal solvency, in the form of a robust positive conditional relationship between public debt and the primary fiscal balance, is established in both groups of countries. Evidence of fiscal solvency is much weaker, however, at high debt levels. These findings suggest that many industrial and emerging market economies, including several where fiscal solvency has been the subject of recent debates, appear to conduct fiscal policy responsibly. Yet our results cannot reject the hypothesis of fiscal insolvency in groups of countries with high debt ratios.

Suggested Citation

  • Mr. Enrique G. Mendoza & Mr. Jonathan David Ostry, 2007. "International Evidenceon Fiscal Solvency: Is Fiscal Policy "Responsible"?," IMF Working Papers 2007/056, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2007/056
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    More about this item

    Keywords

    WP; emerging market; government purchase; growth rate; fiscal solvency; fiscal policy; debt sustainability; solvency condition; budget constraint; debt country; government purchases data; Fiscal stance; Solvency; Africa;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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