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Growth implosions, debt explosions, and my Aunt Marilyn : do growth slowdowns cause public debt crises?

  • Easterly, william

The worldwide slowdown in growth after 1975 was a major negative fiscal shock. Slower growth lowers the present value of tax revenues and primary surpluses and thus makes a given level of debt more burdensome. Most countries failed to adjust to the negative fiscal consequences of the growth implosion, so public-debt-to-GDP ratios exploded. The growth slowdown therefore played an important role in the debt crisis of the middle-income countries in the 1980s, the crisis of the heavily indebted poor countries (HIPCs) in the 1980s and 1990s, and the increased public debt burden of the industrial countries in the 1980s and 1990s. Moreover, the HIPCs'debt problems were worse than elsewhere because, as a result of poor policies, these countries grew more slowly after 1975 than other low-income countries. Econometric tests and fiscal solvency accounting confirm the important role of growth in debt crises.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2531.

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Date of creation: 31 Jan 2001
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Handle: RePEc:wbk:wbrwps:2531
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  1. Fischer, Stanley & Easterly, William, 1990. "The Economic of the Government Budget Constraint," World Bank Research Observer, World Bank Group, vol. 5(2), pages 127-42, July.
  2. Pritchett, Lant, 2000. "The tyranny of concepts - CUDIE (Cumulated, Depreciated Investment Effort) is NOT capital," Policy Research Working Paper Series 2341, The World Bank.
  3. Kling, Jeff & Pritchett, Lant, 1994. "Where in the world is population growth bad?," Policy Research Working Paper Series 1391, The World Bank.
  4. Dan Ben-David & David H. Papell, 1998. "Slowdowns And Meltdowns: Postwar Growth Evidence From 74 Countries," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 561-571, November.
  5. Pritchett, Lant, 2000. "Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains," World Bank Economic Review, World Bank Group, vol. 14(2), pages 221-50, May.
  6. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  7. Auerbach, Alan J. & Gale, William G., 2000. "Perspectives on the Budget Surplus," National Tax Journal, National Tax Association, vol. 53(n. 3), pages 459-72, September.
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