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A "Beggar-Thy-Neighbor" Effect in Public Debt? Evidence from cross-border spillover of fiscal consolidations

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Listed:
  • Kodjovi Mawulikplimi Eklou

    () (Département d'économique, Université de Sherbrooke)

  • Marcelin Joanis

    () (Department of Mathematics and Industrial Engineering, Polytechnique Montréal)

  • Patrick Richard

    () (Département d'économique, Université de Sherbrooke)

Abstract

In a globalized world, countries are exposed to policy shocks from abroad. This paper investigates the cross-border effect of fiscal consolidations taking place in two safe assets countries (Germany and the USA). Cross-border spillovers are defined as the results of fiscal consolidation shocks in Germany or USA which are transmitted to peripheral countries. We consider two levels of analysis: the external effect of US fiscal consolidations on other OECD countries and the external effect of German fi scal consolidations on other Eurozone countries. The "beggar-thy-neighbor" effect in this context means that a reduction of the public debt in a safe asset country as a consequence of a fiscal consolidation plan may generate an increase in the public debt abroad. Our empirical analysis in a sample of 27 OECD countries over the period 1980 - 2007 shows an evidence of a "beggar-thy-neighbor" effect in public debts. We find empirical supports for the mechanism both at the OECD and the Eurozone levels.

Suggested Citation

  • Kodjovi Mawulikplimi Eklou & Marcelin Joanis & Patrick Richard, 2015. "A "Beggar-Thy-Neighbor" Effect in Public Debt? Evidence from cross-border spillover of fiscal consolidations," Cahiers de recherche 15-11, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
  • Handle: RePEc:shr:wpaper:15-11
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    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1511.pdf
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    References listed on IDEAS

    as
    1. Strauch, Rolf & Paesani, Paolo & Kremer, Manfred, 2006. "Public debt and long-term interest rates: the case of Germany, Italy and the USA," Working Paper Series 656, European Central Bank.
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    7. Werner Roeger & Jan Veld & Lukas Vogel, 2010. "Fiscal consolidation in Germany," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 45(6), pages 364-371, November.
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    More about this item

    Keywords

    Fiscal consolidation; Spillover e ffects; Bond yields; Bond issuance; OECD; Eurozone;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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