International Evidence on Fiscal Solvency: Is Fiscal Policy Responsible?

32 Pages Posted: 19 Mar 2007

See all articles by Jonathan D. Ostry

Jonathan D. Ostry

Georgetown University; International Monetary Fund (IMF)

Enrique G. Mendoza

National Bureau of Economic Research (NBER); University of Pennsylvania

Date Written: March 2007

Abstract

This paper looks at fiscal solvency and public debt sustainability in both emerging market and advanced countries. Evidence of fiscal solvency, in the form of a robust positive conditional relationship between public debt and the primary fiscal balance, is established in both groups of countries. Evidence of fiscal solvency is much weaker, however, at high debt levels. These findings suggest that many industrial and emerging market economies, including several where fiscal solvency has been the subject of recent debates, appear to conduct fiscal policy responsibly. Yet our results cannot reject the hypothesis of fiscal insolvency in groups of countries with high debt ratios.

JEL Classification: H6

Suggested Citation

Ostry, Jonathan D. and Mendoza, Enrique G., International Evidence on Fiscal Solvency: Is Fiscal Policy Responsible? (March 2007). IMF Working Paper No. 07/56, Available at SSRN: https://ssrn.com/abstract=973986

Jonathan D. Ostry (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Enrique G. Mendoza

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

HOME PAGE: http://www.sas.upenn.edu/~egme/index.html

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