Fiscal Crises

44 Pages Posted: 12 May 2017

See all articles by Kerstin Gerling

Kerstin Gerling

International Monetary Fund (IMF)

Paulo A. Medas

International Monetary Fund (IMF)

Tigran Poghosyan

International Monetary Fund (IMF)

Juan Farah Yacoub

International Monetary Fund (IMF)

Yizhi Xu

University of California, Los Angeles (UCLA)

Date Written: April 2017

Abstract

A key objective of fiscal policy is to maintain the sustainability of public finances and avoid crises. Remarkably, there is very limited analysis on fiscal crises. This paper presents a new database of fiscal crises covering different country groups, including low-income developing countries (LIDCs) that have been mostly ignored in the past. Countries faced on average two crises since 1970, with the highest frequency in LIDCs and lowest in advanced economies. The data sheds some light on policies and economic dynamics around crises. LIDCs, which are usually seen as more vulnerable to shocks, appear to suffer the least in crisis periods. Surprisingly, advanced economies face greater turbulence (growth declines sharply in the first two years of the crisis), with half of them experiencing economic contractions. Fiscal policy is usually procyclical as countries curtail expenditure growth when economic activity weakens. We also find that the decline in economic growth is magnified if accompanied by a financial crisis.

Keywords: Economic growth, Financial crises, fiscal crisis, sovereign debt default, twin crises, Deficit, Studies of Particular Policy Episodes, General Outlook and Conditions

JEL Classification: H62, H63, E65, E62, E66, G01

Suggested Citation

Gerling, Kerstin and Medas, Paulo A. and Poghosyan, Tigran and Farah-Yacoub, Juan and Xu, Yizhi, Fiscal Crises (April 2017). IMF Working Paper No. 17/86, Available at SSRN: https://ssrn.com/abstract=2967439

Kerstin Gerling (Contact Author)

International Monetary Fund (IMF) ( email )

Paulo A. Medas

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Tigran Poghosyan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Juan Farah-Yacoub

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Yizhi Xu

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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