Fiscal sustainability in an emerging market economy: When does public debt turn bad?

Baharumshah, Ahmad Zubaidi; Soon, Siew-Voon; Lau, Evan

doi:10.1016/j.jpolmod.2016.11.002

Cited by 66 publications

(60 citation statements)

References 30 publications

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“…Our empirical results demonstrate that there is a "wave-shaped" relationship between local government debt and regional economic growth. This finding differs from the inverted U-shaped relationship that is documented in the literature [26][27][28][29][30][31]66,67]. However, the wave-shaped relationship is also in line with the existence of a nonlinear relationship between local government debt and regional economic growth, and the inverted U-shaped relationship is part of the wave-shaped relationship.…”

Section: Discussioncontrasting

confidence: 73%

“…The empirical results show that the relationship between local government debt and regional economic growth does not conform to the inverted U-shaped relationship. This finding is significantly different from the prevailing research conclusions [28][29][30][31][32][33]66,67]. Therefore, it is necessary to use a semiparametric model to analyze the nonlinear relationship, or the wave-shaped relationship between local government debt and regional economic growth.…”

Section: Estimation Results Of the Linear Spatial Durbin Modelmentioning

confidence: 71%

“…The basic regression model is based on relevant research conducted by scholars using a nonlinear relationship hypothesis as the framework [24][25][26][27][28][29][30][31]. We construct a basic regression model using panel data from 30 provinces (municipalities and autonomous regions) in China from 2010 to 2017.…”

Section: (I) Basic Regression Modelmentioning

confidence: 99%

“…For instance, empirical studies have indicated that local government debt has no significant impact on regional economic growth in the short-term or the long-term [12,[19][20][21][22][23]. On the other hand, other researchers [24][25][26][27][28][29][30][31] have established that an inverted U-shaped nonlinear relationship exists between local government debt and regional economic growth. This paradoxical contrast necessitates further investigations to determine which empirical model can establish the correlation between these two variables.…”

Section: Introductionmentioning

confidence: 99%

“…This study contributes to the literature in two ways: first, prior studies [26][27][28][29][30][31] analyzing the relationship between local government debt and regional economic growth have attempted to treat different regions as independent. Meanwhile, scholars [26][27][28][29][30][31] have ignored the importance of spatial correlation effects between the economic growth of different regions. In this study, we introduce a spatial econometric model to analyze the relationship between local government debt and regional economic growth.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

The Effect of Local Government Debt on Regional Economic Growth in China: A Nonlinear Relationship Approach

et al. 2019

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By drawing on the concept of sustainable economic development, this study advances the research on debt sustainability in the economic literature. We explore the correlation between local government debt and regional economic growth in 30 provinces in China. Previous studies have established that the development of economic growth between regions is not independent and we, therefore, investigate the spatial effect of regional economic growth due to the existence of a spatial spillover effect or spatial expansion among regions. Using Moran’s scatter plot, a Local Indicator of Spatial Association (LISA) map, and a semiparametric spatial model (SE-SDM), our results demonstrate the following: (1) the spatial agglomeration effect has a significant influence on regional economic growth; (2) the relationship between local government debt and regional economic growth presents nonlinear characteristics, rather than having an inverted U-shaped relationship; (3) the semiparametric spatial model more accurately characterizes in the nonlinear relationship between local government debt and regional economic growth compared to a basic regression model and the spatial Durbin model; and (4) when the scale of local government debt exceeds a certain level, economic growth will be suppressed by the crowding-out of private investment and the reduction of public expenditure.

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Section: Discussioncontrasting

confidence: 73%

Section: Estimation Results Of the Linear Spatial Durbin Modelmentioning

confidence: 71%

Section: (I) Basic Regression Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The Effect of Local Government Debt on Regional Economic Growth in China: A Nonlinear Relationship Approach

et al. 2019

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Empirical examination of public debt sustainability in African economies: A panel data analysis

Shah,

Rafique,

Afridi

2023

Journal of Public Affairs

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This study intends to investigate public debt sustainability across 29 Sub‐Sahara African (SSA) economies, employing various econometric specifications, for the sampled years 1996–2020. The study employs Bohn's (Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint? Journal of monetary Economics, 54(7), pp.1837–1847.) framework of sustainability as the baseline model to assess public debt sustainability across the sampled Sub‐Sahara African economies. As additional tests of public debt sustainability in order to support the baseline findings, the study also employs panel unit root and timeseries unit tests. The baseline findings from the OLS, panel quantile and instrumental panel quantile regressions show that public debt is sustainable across the panel of SSA economies. The positive and statistically significant response of primary balance under the Bohn's framework of sustainability manifest that the intertemporal budget constraint is not violated in the sampled economies. The consistency in the estimates under the OLS, panel quantile and instrumental panel quantile regressions also show that the estimates are robust throughout the estimation process. Also, utilizing the panel unit root test for public debt sustainability, the findings show that public debt is stationary over the sampled years which implies that intertemporal budget constraint holds and that public debt is sustainable across the sampled SSA economies. However, the timeseries analysis indicate that although majority of the SSA economies have sustainable public debt ratios, four countries namely Uganda, Sudan, Togo and Cote d'Ivoire have unsustainable public debt ratios. The study has important policy implications in terms of prudent public debt management and fiscal management for the sampled SSA economies.

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Combination of economic policies: how the perfect storm wrecked the Brazilian economic growth

Mendonça

Valpassos

2022

Empir Econ

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This study uses a counterfactual analysis to investigate, from the Brazilian experience, the “perfect storm” resultant from the combination of economic policies on economic growth. Specifically, we analyze whether the combination of economic policies that neglect fiscal balance and low and stable inflation with the adoption of strategies to stimulate economic growth without considering the side effects on the economy harmed economic growth. Our findings, robust to several placebo tests, show Brazil’s growth rate is approximately 2.8 pp below the “synthetic Brazil” growth rate. Furthermore, comprehending the great shocks in the period under investigation, the complementary empirical analysis supports the view that the “perfect storm” is the main factor explaining the underperformance of the Brazilian economic growth. Supplementary Information The online version contains supplementary material available at 10.1007/s00181-021-02167-4.

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Fiscal sustainability in an emerging market economy: When does public debt turn bad?

Cited by 66 publications

References 30 publications

The Effect of Local Government Debt on Regional Economic Growth in China: A Nonlinear Relationship Approach

The Effect of Local Government Debt on Regional Economic Growth in China: A Nonlinear Relationship Approach

Empirical examination of public debt sustainability in African economies: A panel data analysis

Combination of economic policies: how the perfect storm wrecked the Brazilian economic growth

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