What Really Drives Public Debt: A Holistic Approach

Anaya, Pablo; Pienkowski, Alex

doi:10.5089/9781513591353.001

Cited by 6 publications

(5 citation statements)

References 18 publications

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“…Bittencourt (2015) applying panel data estimators for a group of new democracies in Latin America as well as Cherif and Hasanov (2012) using a VAR model with debt feedback established unambiguous debt reduction effect of growth. However, Anaya and Pienkowski (2015) and Brafu-Insaidoo et al (2019) found positive effects of growth on public debt movements in the short run.…”

Section: Determinants Of Government Debtmentioning

confidence: 91%

“…Mimicking Sims (1980) Favero and Giavazzi (2007), Cherif and Hasanov (2012), and Anaya and Pienkowski (2015), we must place restrictions [6] on matrix A in order to make impulse response and forecast error variance decomposition analyses using SVAR framework. Theoretical guidance and empirical judgment could help formalize some kind of causal relationships among variables within the system which in turn facilitates the identification process.…”

Section: Structural Var Identificationmentioning

confidence: 99%

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Re-examining public debt and current account dynamics: SVAR evidence from Ethiopia

Melesse

2020

JEAS

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PurposePublic debt management is now an integral part of overall macroeconomic management in many developing and emerging market economies. Preventing unsustainable debt accumulation and maintaining healthy fiscal profile begins with understanding its key drivers both in the short and in the long run. The purpose of this paper is to analyze public debt and current account dynamics in Ethiopia.Design/methodology/approachThis study applies structural vector auto-regressive (SVAR) model on annual time series data to study general government debt and current account dynamics in Ethiopia for the period 1980–2018.FindingsBoth the impulse response and forecast error variance decomposition results confirm that fiscal balance exerts the strongest influence on both government debt and current account balance in the short run. In addition, own shock as well as shocks stemming from gross fixed capital formation and growth have significant effects on general government debt. The findings were robust to alternative data transformation, differing Choleski ordering of the model variables, and inclusion of exogenous deterministic terms that capture changes in the political landscape.Practical implicationsThe most important implication is that since fiscal balance is the strongest determinant of both public debt and current account balance, public investment efficiency is relevant here than anywhere else in the national economy. A recent study by Barhoumi et al. (2018) found that the sub-Saharan region lags behind its peers in terms of public sector investment efficiency with inefficiency gap of as large as 54% depending on the indicator variable for public investment output. Improving public investment spending efficiency would reduce government debt by enhancing productivity and growth – which has significant negative effect on public debt.Originality/valueFirst, the few studies conducted on Ethiopia are dominated by single equation specifications and do not account for the possibility of endogenous feedback effects among the model variables. Second, still equally important is the role of rising gross fixed capital formation in Ethiopia, which increased from about 13% (relative to GDP) in the 1980s to about 35% in the 2010s. Ignoring this variable amounts to a major model misspecification when analyzing short-run macro dynamics in low-income economies. Finally, the paper complements existing limited studies on Ethiopia by comparing the strength of shock propagation mechanisms using alternative data transformation techniques.

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Section: Determinants Of Government Debtmentioning

confidence: 91%

Section: Structural Var Identificationmentioning

confidence: 99%

Re-examining public debt and current account dynamics: SVAR evidence from Ethiopia

Melesse

2020

JEAS

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“…A number of studies have been conducted on the determinants of public debt and current account balance in both developed and developing economies (e.g. Cherif and Hasanov, 2012;Bittencourt 2013;Anaya and Pienkowski, 2015;Sisay and Kotosz, 2020;Hashem and Fahmy, 2019;Brafu-Insaidoo et al, 2019;Calderon et al, 2007;Das, 2016;Teamrat, 2018;Sadiku et al, 2015). This paper highlights at least three important differences compared with those studies on low-income economies including Ethiopia.…”

Section: Introductionmentioning

confidence: 86%

Re-Examining Public Debt and Current Account Dynamics in Ethiopia: SVAR Evidence

Melesse

2020

Preprint

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Public debt management is now an integral part of overall macroeconomic management in many developing and emerging market economies. Preventing unsustainable debt accumulation and maintaining healthy fiscal profile begins with understanding its key drivers both in the short- and in the long run. This study applies structural vector auto-regressive (SVAR) model on annual time series data to study general government debt and current account dynamics in Ethiopia for the period 1980–2018. Both the impulse response and forecast error variance decomposition results confirm that fiscal balance exerts the strongest influence on both government debt and current account balance in the short run. In addition, own shock as well as shocks stemming from gross fixed capital formation and growth have significant effects on general government debt. The findings were robust to alternative data transformation, differing Choleski ordering of the model variables, and inclusion of exogenous deterministic terms that capture changes in the political landscape.JEL classification: E60, E63, C32, H63

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“…Accordingly, Models (1), ( 2), ( 5) and ( 6) include the first-order lag of debt because the effect of debt on privatisation could be delayed. Models (3), ( 4), ( 7) and ( 8) also include the first-order lag of debt because one year's debt level is affected by the previous year's level of debt (Anaya & Pienkowski, 2015). Furthermore, Models (3), ( 4), ( 7) and ( 8) include the first-order lag of privatisation variables because the effect of privatisation on debt could be delayed.…”

Section: Models Of Analysismentioning

confidence: 99%

The relationship between public debt and privatisation: the moderating roles of political ideology and electoral cycles

Cuadrado-Ballesteros,

Peña-Miguel

2024

Rev. contab.

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Using a sample of 25 European countries between 1995 and 2013, this study shows a bidirectional relationship between privatisations and public debt. Firstly, our findings suggest that governments with higher levels of debt tend to privatise state-owned enterprises (SOEs) to a greater extent than less-indebted governments. Subsequently, the results show that privatisations effectively reduce indebtedness. This means that causality between privatisation and public debt should be considered in future studies. In addition, we have found that such a strategy is used more by right-wing governments, which implies the existence of partisan effects. However, our findings do not support any effect caused by electoral cycles. Utilizando una muestra de 25 países europeos entre 1995 y 2013, este estudio expone una relación bidireccional entre privatizaciones y deuda pública. En primer lugar, nuestros resultados sugieren que los gobiernos con mayores niveles de deuda tienden a privatizar empresas públicas en mayor medida que los gobiernos menos endeudados. Posteriormente, los resultados revelan que las privatizaciones reducen efectivamente el endeudamiento. Esto significa que la causalidad entre privatización y deuda pública debería tenerse en cuenta en futuros estudios. Además, se ha constatado que dicha estrategia es más utilizada por los gobiernos de derechas, lo que implica la existencia de efectos partidistas. Sin embargo, nuestros resultados no apoyan ningún efecto causado por los ciclos electorales.

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What Really Drives Public Debt: A Holistic Approach

Cited by 6 publications

References 18 publications

Re-examining public debt and current account dynamics: SVAR evidence from Ethiopia

Re-examining public debt and current account dynamics: SVAR evidence from Ethiopia

Re-Examining Public Debt and Current Account Dynamics in Ethiopia: SVAR Evidence

The relationship between public debt and privatisation: the moderating roles of political ideology and electoral cycles

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