Asymmetries in the sustainability of public debt in the EU: The use of swaps

Giannini, Bianca; Oldani, Chiara

doi:10.1016/j.jeca.2022.e00248

Cited by 4 publications

(4 citation statements)

References 20 publications

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“…In the random effect model, we observed similar trends, with debt swap funding (δ = 1.7235, p < 0.05), human resource development (δ = 0.5993, p < 0.05), and debt service (δ = 0.4160, p < 0.01) influencing education attainment significantly. These results suggest that policies aimed at promoting debt swap initiatives and enhancing human capital can play a pivotal role in fostering education programs, while effective management of debt servicing is equally crucial (Giannini & Oldani, 2022;Himmer & Rod, 2022;Yang & Zheng, 2020). Our models collectively accounted for 32% (fixed effect) and 29% (random effect) of the variance in education attainment.…”

Section: Resultsmentioning

confidence: 89%

Debt Swap Funding Nexus Education Attainment in the Presence of Per Capita Income in Debt Burdened Economies: An Empirical Analysis Using Two Step SYS-GMM

Ahmad,

Safdar,

Azam

2023

J. educ. soc. stud.

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Debt swap funding is one of the important catalysts for education attainment in debt-burdened economies. It enhances the education status by providing extra fiscal space for the government to invest resources for quality education, increasing capital inflow, and reducing the debt burden in the recipient countries. The main purpose of the study is to investigate the impact of debt swap funding on education attainment in debt-burdened economies for the period 2003-2021. The relationship between debt swap funding and education attainment is analyzed in the presence of per capita income of the respective countries by using the advanced methodology Two Step System GMM. Other variables, which are the main determinants of debt swap funding, like IMF structural adjustment program and debt service, are used as control variables. Education attainment is also dependent on per capita income included in the model, along with growth parameters of new growth theory (technological growth, population growth, and depreciation rate), which are part of the control variables. The results of the study show a positive and statistically significant relation between debt swap funding and education attainment in debt-burdened economies in the presence of per capita income. Policy recommendations are proposed in light of the results obtained regarding the debt swap funding nexus education attainment.

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Section: Resultsmentioning

confidence: 89%

Debt Swap Funding Nexus Education Attainment in the Presence of Per Capita Income in Debt Burdened Economies: An Empirical Analysis Using Two Step SYS-GMM

Ahmad,

Safdar,

Azam

2023

J. educ. soc. stud.

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“…Gómez-Puig and Sosvilla-Rivero (2018) argue that public debt always has a negative impact on the long-run performance of a country's economy if public debt goes beyond 77% of GDP in a study with a sample of 101 countries (Grennes et al 2010), and above 90% in a sample of 12 euro-area countries (Checherita-Westphal and Rother 2012). Interestingly, empirical studies predict that the possibility of reducing debt through inflation is applicable in the medium and long term (Kwon et al 2006;Aizenman and Marion 2011;Akitoby et al 2017;Giannini and Oldani 2022).…”

Section: Short Literature Reviewmentioning

confidence: 99%

“…Interestingly, even if fiscal expansion (essential to face economic stress times) fell to pre-crisis levels, public debt soared. Borrowing was a global phenomenon across the crisis periods, and the argument is that interest rates were expected to remain below the economy's growth rate so as to ease debt rollovers, that is, debt issuance without any fiscal cost (Debrun et al 2019;Blanchard 2019;Giannini and Oldani 2022). This is what we refer to as the sustainability or solvency condition.…”

Section: Introductionmentioning

confidence: 99%

“…However, the Neoclassical analysis argues that higher debt levels driven by the budget deficits created to face a crisis period (for example, when a crisis hits) are not temporary, and austerity policy needs to be undertaken to restore to previous levels. Interestingly, recent studies claim that higher debt levels might be welfare-enhancing if the growth rate is higher than the borrowing cost, and economic growth is the main factor stabilizing the dynamics of debt, which is essential for debt sustainability in the medium and long term (Debrun et al 2019;Blanchard 2019;Giannini and Oldani 2022).…”

Section: Introductionmentioning

confidence: 99%

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Dynamic Stability of Public Debt: Evidence from the Eurozone Countries

Katsikas,

Laopodis,

Spanos

2023

IJFS

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This paper investigates the dynamic stability of public debt and its solvency condition in the face of crisis periods (1980–2021) in a sample of 11 euro-area countries. The focus is on the feedback loop between the dynamic stability of public debt and interest rates, discounted by economic growth, in conjunction with budget deficits during tranquil and turbulent periods. Using the GMM panel dynamic model, the results show that dynamic stability was the case before the global financial crisis (GFC), while from GFC to the pandemic, dynamic instability prevailed and persisted in the evolution of public debt. Furthermore, panel threshold estimates show that dynamic instability of debt starts to violate the solvency condition when the borrowing cost is above 3.29%, becomes even stronger when it is above 4.39%, and exerts even more pressure when the level of debt is greater than 91%. However, the debt sustainability condition reverses course when economic growth is higher than 3.4%. The main policy implication drawn from the results is that low interest rates can create a self-reinforcing loop of high debt, which itself is a serious matter for public authorities when designing economic policies.

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The public debt sustainability and its determinants in Sub-Sahara African countries

Ye,

Guo

2024

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PurposeThis paper aims to answer the following important questions: Is public debt in Sub-Saharan African (SSA) countries sustainable? What are the determinants of public debt sustainability in these countries, and do these determinants exhibit heterogeneity due to regional, natural resource, and income differences among SSA countries?Design/methodology/approachThis study analyzes the public debt sustainability in SSA countries using the theoretical model known as the Present Value Budget Constraint (PVBC) model developed by Hamilton and Flavin (1986), and adopts the econometric testing method proposed by Trehan and Walsh (1991). Moreover, to empirically investigate the determinants of public debt sustainability in SSA countries, the System-Generalized Method of Moments (System-GMM) method is applied. Furthermore, this study conducts heterogeneity analysis by categorizing the sample based on different regions, natural resource endowments, and income levels. The data of this study are sourced from the IMF and World Bank databases for 45 SSA countries from 2005 to 2021.FindingsFindings reveal that public debt in SSA countries is not sustainable in the long run, with factors such as the previous government debt, long-term debt ratio, debt repayment capacity, economic growth rate, inflation rate, export to GDP, and government fiscal deficit rate influencing sustainability. Additionally, the factors exhibit heterogeneity attributed to regional, natural resource, and income variations among SSA countries.Practical implicationsThe findings of our study will serve as a catalyst for policymakers in the SSA countries to embrace and sustain robust fiscal consolidation and debt stabilization measures. Moreover, countries with distinct characteristics should implement tailored approaches. Additionally, policymakers in SSA countries should implement economic measures to address public debt issues. These measures include improving the macroeconomic structure, promoting economic transformation and diversification of industries, fostering sustainable economic growth, ensuring price stability, and strengthening resilience against external shocks and debt risks. Specifically, countries endowed with indigenous species, resources, and tourism potential should adopt a well-coordinated strategy that utilizes agriculture, tourism, ecotourism, and the hospitality industry as instruments for sustainable local community and rural development.Originality/valueFirstly, it assesses the sustainability of public debt and its determinants for countries in SSA, which distinguishes it from previous studies that only focus on either debt sustainability or determinants of debt separately. Secondly, by including multiple SSA countries in the analysis, this study stands out from prior research that predominantly concentrates on specific nations. Thirdly, the utilization of the System-GMM method for analyzing determinants adds a novel dimension to this study, departing from earlier literature primarily focused on debt thresholds. Lastly, the heterogeneity analysis conducted in this study provides an empirical foundation for tailoring policies to different countries, addressing a facet often overlooked in earlier literature.

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Asymmetries in the sustainability of public debt in the EU: The use of swaps

Cited by 4 publications

References 20 publications

Debt Swap Funding Nexus Education Attainment in the Presence of Per Capita Income in Debt Burdened Economies: An Empirical Analysis Using Two Step SYS-GMM

Debt Swap Funding Nexus Education Attainment in the Presence of Per Capita Income in Debt Burdened Economies: An Empirical Analysis Using Two Step SYS-GMM

Dynamic Stability of Public Debt: Evidence from the Eurozone Countries

The public debt sustainability and its determinants in Sub-Sahara African countries

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