The Global Dimension to Fiscal Sustainability
Posted: 25 Oct 2014
Date Written: January 2011
This paper provides a new perspective of fiscal sustainability and financial globalization in emerging and industrial countries. We highlight the importance of global capital market shocks for fiscal sustainability, a relationship which has hitherto been ignored in the empirical literature. Using a factor model we demonstrate that the relationship between deficit and debt is conditional upon a global factor and we suggest that this global factor is related to world-wide liquidity. We also demonstrate that this acts as a constraint on emerging market economies' fiscal policy.
Keywords: Fiscal policy, Sustainability
JEL Classification: E62, F34, H62, H63
Suggested Citation: Suggested Citation