Predicting Fiscal Crises
43 Pages Posted: 22 Aug 2018
Date Written: August 2018
This paper identifies leading indicators of fiscal crises based on a large sample of countries at different stages of development over 1970-2015. Our results are robust to different methodologies and sample periods. Previous literature on early warning sistems (EWS) for fiscal crises is scarce and based on small samples of advanced and emerging markets, raising doubts about the robustness of the results. Using a larger sample, our analysis shows that both nonfiscal (external and internal imbalances) and fiscal variables help predict crises among advanced and emerging economies. Our models performed well in out-of-sample forecasting and in predicting the most recent crises, a weakness of EWS in general. We also build EWS for low income countries, which had been overlooked in the literature.
Keywords: Taxation, Low income countries, Debt, Debt management, Fiscal policy, Fiscal crises, Early Warning System, Public Expenditures, Investment, and Finance, Studies of Particular Policy Episodes
JEL Classification: H63, E62, E65, E66, F47, G01
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