Limits to government debt sustainability

Fournier, Jean‐Marc; Fall, Falilou

doi:10.1787/5jrxv0fctk7j-en

Cited by 20 publications

(4 citation statements)

References 17 publications

(21 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…However, Reinhart et al (2003) suggested a 15%-20% ratio of debt to GDP. Another strand of literature used the FRF to measure public debt sustainability (see Abiad and Baig 2005;Islam and Biswas 2006;De Mello 2008;Hajdenberg and Romeu 2010;Burger et al 2011;Ghosh et al 2013;Fournier and Fall 2015;Campos et al 2020). In addition, to recognize fiscal fatigue risks, Checherita-Westphal and Ždárek (2017) used the FRF to find primary balance benchmarks.…”

Section: Review Of the Empirical Literaturementioning

confidence: 99%

To Borrow or Not to Borrow: Empirical Evidence from the Public Debt Sustainability of Pakistan

Islam¹,

Ahmed²

2023

View full text Add to dashboard Cite

We aim to evaluate the public debt sustainability of Pakistan using the debt sustainability analysis (DSA) framework and fiscal reaction function (FRF). For the empirical analysis, we use relevant important macroeconomic variables, such as public debt, external debt, primary balance, output growth, current account balance, and oil prices, over the period 1976–2021. The results of the DSA suggest that, at the 10% growth rate with a real interest rate lower than 10%, the public debt level can be brought under the 60% standard sustainable limit from the current 80% by the year 2030. Furthermore, the estimates of the FRF reveal no evidence of debt sustainability. Besides this, the COVID-19 pandemic is positively associated with the primary balance mainly due to the decrease in the primary balance from –3.5% in 2019 to –0.9% in 2020. This is expected as a large amount of debt relief was provided to Pakistan during this period. Overall, our findings indicate that, if the rapid debt accumulation trend continues, the country will be unable to bear such a hefty load of ballooning debt. Therefore, a strategy of continuing coordination of fiscal and monetary policy is crucial for robust growth momentum to keep the debt sustainable.

show abstract

Section: Review Of the Empirical Literaturementioning

confidence: 99%

To Borrow or Not to Borrow: Empirical Evidence from the Public Debt Sustainability of Pakistan

Islam¹,

Ahmed²

2023

View full text Add to dashboard Cite

show abstract

“…Second, unlike existing studies on public debt sustainability (Bohn, 1998(Bohn, , 2005Fournier & Fall, 2015;Ghosh et al, 2013), and following Beqiraj et al (2018), this study distinguishes between structural (discretionary fiscal policy) and nonstructural primary balance. The discretionary fiscal policies are quantitatively measured by the structural primary balance.…”

Section: Empirical Contribution To Extant Studiesmentioning

confidence: 99%

“…When estimating Equation 1, most of the existing literature (Bohn, 1998(Bohn, , 2005Fournier & Fall, 2015;Ghosh et al, 2013;Mauro et al, 2015) did not distinguish between discretionary fiscal policy response (structural) and automatic fiscal response (nondiscretionary). In contrast, this study follows Beqiraj et al (2018) to distinguish between the discretionary and automatic responses of the primary balance of government actions.…”

Section: Model Specification On the Sustainability Of Public Debt And...mentioning

confidence: 99%

Sub‐Saharan Africa's rising public debt stock: Is there a cause for concern?

Olaoye¹,

Olomola

2022

South African J Economics

View full text Add to dashboard Cite

The study investigated public debt sustainability in sub‐Saharan Africa (SSA) by testing the reaction of the primary balance to positive and negative shocks in public debts in a panel of 45 SSA countries. The study adopts the innovative nonlinear fiscal reaction function and the dynamic panel threshold model to account for the potential asymmetric phenomenon in the public debt series. In line with extant studies, the study found that public debts in SSA are weakly sustainable and there is a highly procyclical fiscal policy bias in SSA countries, particularly in resource‐rich countries, indicating that governments' fiscal policy responses are expansionary during economic upturns and contractionary during recessions, which may aggravate recessions and worsen debt situations across SSA. For robustness, the study compares the results with emerging and developed economies. The results indicate that in advanced economies, public debt is sustainable and that fiscal policy response is countercyclical. The research and policy implications are discussed.

show abstract

“…For instance, the notion of "fiscal fatigue" has been introduced by Gosh et al (2013) who detect a reversal in the behaviour of the primary balance as debt ratios become very high and the response peters out and becomes negative. Other applications in this direction are by Checherita-Westphal and Zdarek (2017) as well as Fournier and Fall (2015), Legrenzi and Milas (2011) and Owusu et al (2021) for instance.…”

Section: Introductionmentioning

confidence: 99%

Regime-based debt sustainability analysis: Evidence from euro area economies

Owusu,

Bökemeier,

Greiner

2023

European Journal of Political Economy

View full text Add to dashboard Cite

Limits to government debt sustainability

Abstract: By Jean-Marc Fournier and Falilou Fall OECD Working Papers should not be reported as representing the official views of the OECD or of its member countries. The opinions expressed and arguments employed are those of the author(s).

Cited by 20 publications

References 17 publications

To Borrow or Not to Borrow: Empirical Evidence from the Public Debt Sustainability of Pakistan

To Borrow or Not to Borrow: Empirical Evidence from the Public Debt Sustainability of Pakistan

Sub‐Saharan Africa's rising public debt stock: Is there a cause for concern?

Regime-based debt sustainability analysis: Evidence from euro area economies

Contact Info

Product

Resources

About