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The Consequences of Banking Crises for Public Debt

22 Pages Posted: 15 Jan 2012  

Davide Furceri

University of Palermo; Organization for Economic Co-Operation and Development (OECD)

Aleksandra Zdzienicka

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

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Date Written: March 25, 2010

Abstract

The aim of this paper is to assess the consequences of banking crises for public debt. Using an unbalanced panel of 154 countries from 1980 to 2006, the paper shows that banking crises are associated with a significant and long-lasting increase in government debt. The effect is a function of the severity of the crisis. In particular, we find that for severe crises, comparable to the most recent one in terms of output losses, banking crises are followed by a medium-term increase of about 37 percentage points in the government gross debt-to-GDP ratio. We also find that the debt ratio increased more in countries with a worse initial fiscal position (in terms of the gross debt to GDP ratio) and with a higher share of foreign debt.

Keywords: Output Growth, Financial Crisis, CEECs

JEL Classification: G1, E6

Suggested Citation

Furceri, Davide and Zdzienicka, Aleksandra, The Consequences of Banking Crises for Public Debt (March 25, 2010). Bank of Italy Occasional Paper. Available at SSRN: https://ssrn.com/abstract=1985237 or http://dx.doi.org/10.2139/ssrn.1985237

Davide Furceri (Contact Author)

University of Palermo ( email )

Viale delle Scienza
Palermo, Buenos Aires 90128
Italy

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Aleksandra Zdzienicka

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

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