IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2013-005.html
   My bibliography  Save this paper

A Modern History of Fiscal Prudence and Profligacy

Author

Listed:
  • Mr. Paolo Mauro
  • Rafael Romeu
  • Mr. Ariel J Binder
  • Mr. Asad Zaman

Abstract

We draw on a newly collected historical dataset of fiscal variables for a large panel of countries—to our knowledge, the most comprehensive database currently available—to gauge the degree of fiscal prudence or profligacy for each country over the past several decades. Specifically, our dataset consists of fiscal revenues, primary expenditures, the interest bill (and thus both the primary and the overall fiscal deficit), the government debt, and gross domestic product, for 55 countries for up to two hundred years. For the first time, a large cross country historical data set covers both fiscal stocks and flows. Using Bohn’s (1998) approach and other tests for fiscal sustainability, we document how the degree of prudence or profligacy varies significantly over time within individual countries. We find that such variation is driven in part by unexpected changes in potential economic growth and sovereign borrowing costs.

Suggested Citation

  • Mr. Paolo Mauro & Rafael Romeu & Mr. Ariel J Binder & Mr. Asad Zaman, 2013. "A Modern History of Fiscal Prudence and Profligacy," IMF Working Papers 2013/005, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2013/005
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=40222
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mendoza, Enrique G. & Ostry, Jonathan D., 2008. "International evidence on fiscal solvency: Is fiscal policy "responsible"?," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1081-1093, September.
    2. Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2013. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," Economic Journal, Royal Economic Society, vol. 0, pages 4-30, February.
    3. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 949-963.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    5. Dincecco,Mark, 2013. "Political Transformations and Public Finances," Cambridge Books, Cambridge University Press, number 9781107617759.
    6. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
    7. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    8. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
    9. Mauro, Paolo & Sussman, Nathan & Yafeh, Yishay, 2007. "Emerging Markets and Financial Globalization: Sovereign Bond Spreads in 1870-1913 and Today," OUP Catalogue, Oxford University Press, number 9780199226139.
    10. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    11. Carmen M. Reinhart & M. Belen Sbrancia1, 2015. "The liquidation of government debt," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(82), pages 291-333.
    12. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    13. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 16(32), pages 52-82.
    14. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    15. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
    16. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    17. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
    18. Bohn, Henning, 2007. "Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1837-1847, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Reinhart, Carmen M. & Reinhart, Vincent & Rogoff, Kenneth, 2015. "Dealing with debt," Journal of International Economics, Elsevier, vol. 96(S1), pages 43-55.
    2. Panizza, Ugo & Fatás, Antonio & Ghosh, Atish R. & ,, 2019. "The Motives to Borrow," CEPR Discussion Papers 13735, C.E.P.R. Discussion Papers.
    3. Carmen M. Reinhart, 2022. "From Health Crisis to Financial Distress," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(1), pages 4-31, March.
    4. Markus Reischmann, 2016. "Empirical Studies on Public Debt and Fiscal Transfers," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 63.
    5. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. Jon Danielsson & Marcela Valenzuela & Ilknur Zer, 2018. "Learning from History: Volatility and Financial Crises," The Review of Financial Studies, Society for Financial Studies, vol. 31(7), pages 2774-2805.
    7. Gertler, Pavel & Hofmann, Boris, 2018. "Monetary facts revisited," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 154-170.
    8. Michael D. Bordo, 2017. "An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime," Economics Working Papers 17108, Hoover Institution, Stanford University.
    9. Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Public Debt Overhangs: Advanced-Economy Episodes since 1800," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 69-86, Summer.
    10. Nguyen, Thanh Cong & Castro, Vítor & Wood, Justine, 2022. "A new comprehensive database of financial crises: Identification, frequency, and duration," Economic Modelling, Elsevier, vol. 108(C).
    11. Bjarni G. Einarsson & Kristófer Gunnlaugsson & Thorvardur Tjörvi Ólafsson & Thórarinn G. Pétursson, 2015. "The long history of financial boom-bust cycles in Iceland - Part I: Financial crises," Economics wp68, Department of Economics, Central bank of Iceland.
    12. Sabaté, Marcela & Fillat, Carmen & Escario, Regina, 2019. "Budget deficits and money creation: Exploring their relation before Bretton Woods," Explorations in Economic History, Elsevier, vol. 72(C), pages 38-56.
    13. Bordo, M.D. & Meissner, C.M., 2016. "Fiscal and Financial Crises," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 355-412, Elsevier.
    14. Roberto Tamborini & Matteo Tomaselli, 2020. "When does public debt impair economic growth? A literature review in search of a theory," DEM Working Papers 2020/7, Department of Economics and Management.
    15. Jasper Lukkezen & Hugo Rojas-Romagosa, 2012. "When is debt sustainable?," CPB Discussion Paper 212, CPB Netherlands Bureau for Economic Policy Analysis.
    16. Thanh C. Nguyen & Vítor Castro & Justine Wood, 2022. "Political environment and financial crises," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 417-438, January.
    17. Nicholas Oulton, 2013. "Medium and long run prospects for UK growth in the aftermath of the financial crisis," Discussion Papers 1307, Centre for Macroeconomics (CFM).
    18. Cesa-Bianchi, Ambrogio & Eguren Martin, Fernando & Thwaites, Gregory, 2019. "Foreign booms, domestic busts: The global dimension of banking crises," Journal of Financial Intermediation, Elsevier, vol. 37(C), pages 58-74.
    19. Jordà, Òscar & Schularick, Moritz & Taylor, Alan M., 2015. "Leveraged bubbles," Journal of Monetary Economics, Elsevier, vol. 76(S), pages 1-20.
    20. Funke, Manuel & Schularick, Moritz & Trebesch, Christoph, 2016. "Going to extremes: Politics after financial crises, 1870–2014," European Economic Review, Elsevier, vol. 88(C), pages 227-260.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2013/005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.