How fiscal rules can reduce sovereign debt default risk

Gómez, José Eduardo; Valencia, Oscar; Sánchez, Gustavo

doi:10.1016/j.ememar.2021.100839

Cited by 21 publications

(11 citation statements)

References 30 publications

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“…Fiscal rules are introduced in two distinct ways, as a dummy variable taking on the value of one when a country has a fiscal rule in place and zero otherwise ("Rule"), and as a continuous variable taking a value in the closed interval [0,5] depending on the quality of the fiscal rule that has been implemented ("Quality"). Fiscal rules are lagged five years, reflecting the fact that governments take time to adjust their behavior to the fiscal rule and, hence, a positive effect of fiscal rule implementations on macroeconomic stability takes time (see Gomez-Gonzalez et al, 2022).…”

Section: Resultsmentioning

confidence: 99%

“…The growing literature on the effects of fiscal rule implementation has shown their effectiveness in achieving fiscal and macroeconomic sustainability (Argimón and Hernandez de Cos, 2012;Benito, Bastida, and Vicente, 2013;Milessi-Ferreti, 2004;Neyapti, 2013;Schaltegger and Feld, 2009;Tapsoba, 2012) and in reducing the size of the state government (Krol, 2007). A recent contribution by Gomez-Gonzalez, Valencia, and Sánchez, (2022) shows that fiscal rules reduce sovereign debt default risk measured through sovereign bond interest rate spreads, and the probability that a country suffers a sudden stop in capital flows.…”

Section: Introductionmentioning

confidence: 99%

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Debt Affordability in Developed and Emerging Market Economies: The Role of Fiscal Rules

Valencia¹,

Gómez-González²,

Sánchez³

2022

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This paper studies the effect of fiscal rules on debt affordability in a large set of developed and emerging market economies, using a panel data model which allows the inclusion of weakly exogenous regressors, and which deals appropriately with cross-sectional dependence. The results show a positive and significant effect of fiscal rule implementation on public debt affordability which is robust to various model specifications. The effect is stronger for emerging market economies which benefit from the implementation of any fiscal rule. In contrast, developed countries benefit only from high-quality fiscal rules. The findings have important policy implications for fiscal management, especially in emerging market economies.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Debt Affordability in Developed and Emerging Market Economies: The Role of Fiscal Rules

Valencia¹,

Gómez-González²,

Sánchez³

2022

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“…Some newly established literature is concentrating on the fiscal rule effectiveness related to macroeconomic policies and policy advises regarding the new design of the fiscal regulations based on the experiences from the COVID-19-Crisis. Gomez-Gonzalez et al (2022) analyze the impact of fiscal rule implementations on the sovereign risk of the country. Hutchison (2020) discusses various scenarios based on political economic theory, paying special focus on fiscal rules.…”

Section: Literaturementioning

confidence: 99%

“…These circumstances put national fiscal authorities under pressure, making it difficult for them to both address the economic downturn and maintain a balance between fiscal resources. Research conducted in pandemic has recommended that the existing fiscal rules have benefits during pandemic crisis (Davoodi et al, 2022;Gomez-Gonzalez et al, 2022;Hutchison, 2020). We investigate if various political, budgetary, and institutional structures in various nations can account for various economic outcomes following the COVID-19-Crisis.…”

Section: Introductionmentioning

confidence: 99%

Effects of Fiscal Rules and Political Framework: Evidence from COVID-19 Crisis

2022

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The COVID-19-Crisis impacted economic growth globally, opening up the need for public spending. These conditions put national fiscal authorities under pressure, challenging them primarily to remedy the economic downturn, and secondly to balance fiscal resources. We analyze whether alternative institutional frameworks, fiscal rules and political regimes across numerous countries can explain different economic outcomes following the COVID-19-Crisis. The empirical results show that growth in GDP affects gross debt negatively, government revenue positively, and national savings positively for all subsets, except for the federal subset. The effect on government revenue for fiscal subset is higher than for no fiscal rule. In almost all the subgroup models, it can be observed that the COVID-19 period has a positive effect on gross government debt and a negative on government revenue, except for federal countries and countries with a fiscal rule and a majority government. For all subsets the effect of the COVID-19 variable is not significant in the national savings regression models. For the countries in the federal subset the explanatory variables are unable to reduce the government debt. Conclusively, we could propose adaptive fiscal rules, which motivate fiscal authorities to maintain fiscal balance in long debt and in the annual budget.

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“…They allow reducing excessive political pressure on the state budget towards increasing its deficit and public debt to finance political programs. Fiscal rules are beneficial for macroeconomic stability (Gomez-Gonzalez et al, 2021). Nizioł (2018) proves that, in addition to fiscal discipline in public spending, the fiscal rule effectively limits the growth of public debt, which has a positive effect on macroeconomic stability.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Policy of Economic Development: Comparative Characteristics of Ukraine and Poland

Sliusarchuk

Lavrov

Kuybida³

et al. 2021

Etikonomi

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In order to achieve the purpose outlined, this research uses the following methods: analysis and synthesis; economic and statistical analysis and comparison; economic and mathematical; generalization. The result shows that Poland's fiscal policy aims at developing economic infrastructure and building an economic model of the state based on the manufacture of products with a high share of value-added. However, the fiscal policy of Ukraine does not have significant effects on economic development due to the use of such instruments as public debt and capital expenditures. However, the external debt dependence of the state is relatively high. Nevertheless, it proves that the fiscal policy of Ukraine does not increase the level of economic complexity and development of the processing industry through the implementation of tax benefits. It proposes to increase the efficiency of tax authorities in Ukraine in terms of combating the shadow economy, boost the share of capital expenditures and raise the level of conversion of public debt into economic growth.JEL Classification: E62, F63, H21How to Cite:Petrunenko, I., Lavrov, R., Kuybida, V., Slatvinskyi, M., & Zelenskyi, A. (2021). Fiscal Policy of Economic Development: Comparative Characteristics of Ukraine and Poland. Etikonomi, 20(2), xx– xx. https://doi.org/10.15408/etk.v20i2.22013.

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How fiscal rules can reduce sovereign debt default risk

Cited by 21 publications

References 30 publications

Debt Affordability in Developed and Emerging Market Economies: The Role of Fiscal Rules

Debt Affordability in Developed and Emerging Market Economies: The Role of Fiscal Rules

Effects of Fiscal Rules and Political Framework: Evidence from COVID-19 Crisis

Fiscal Policy of Economic Development: Comparative Characteristics of Ukraine and Poland

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