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Fiscal Discipline and Defaults

Author

Listed:
  • Gonzalo F. de-Córdoba

    (Departamento de Teoría e Historia Económica, Universidad de Málaga)

  • Pau S. Pujolas

    (Department of Economics, McMaster University)

  • José L. Torres

    (Department of Economics, University of Málaga)

Abstract

We develop a general equilibrium model with a detailed structure of government expenditures and revenues, calibrate it to the Greek and German economies, and use it study the link between scal discipline and defaults. We show that even if the Greek government had entered the Great Recession with the same structure of government expenditures and revenues as Germany, but with the Greek level of debt, it would still have chosen to default when facing a high interest rate. Alternatively, if the Greek government had kept its structure of government expenditures and revenues, but managed to decrease its debt to the level of Germany, it would not have defaulted. The primacy of debt over the structure of government expenditures and revenues in default decisions is further emphasized by our ndings that even if Germany, with a low level of debt, faced the same high interest rate as Greece did, it would still not have defaulted.

Suggested Citation

  • Gonzalo F. de-Córdoba & Pau S. Pujolas & José L. Torres, 2016. "Fiscal Discipline and Defaults," Working Papers 2016-05, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
    • Handle: RePEc:mal:wpaper:2016-5
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    References listed on IDEAS

    as
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    Cited by:

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    3. Diego Anzoategui, 2019. "Sovereign Debt and the Effects of Fiscal Austerity," 2019 Meeting Papers 441, Society for Economic Dynamics.

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    Keywords

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    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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