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The Fiscal Policy Response To Public Debt In Developing Countries

Author

Listed:
  • Oronde Small
  • Leanora Brown
  • Gustavo Canavire‐Bacarreza

Abstract

Theoretical models on fiscal sustainability hypothesize that indebted governments can lower their current debt by generating future primary surpluses, ceteris paribus. While both developed and developing countries struggle with the issue of debt stabilization, the latter, in particular face heightened sensitivity from creditors, which provides them an impetus to respond more strongly to stabilize their debt. Based on a panel of 53 developing countries, we examine the fiscal response of these countries to changes in their debt‐to‐gross domestic product ratio. We find evidence of a positive relationship between the debt and primary surplus and that countries adjust along both the revenue and expenditure margins at roughly the same rate. (JEL E62, H50, O11)

Suggested Citation

  • Oronde Small & Leanora Brown & Gustavo Canavire‐Bacarreza, 2020. "The Fiscal Policy Response To Public Debt In Developing Countries," Contemporary Economic Policy, Western Economic Association International, vol. 38(1), pages 155-165, January.
    • Handle: RePEc:bla:coecpo:v:38:y:2020:i:1:p:155-165
    DOI: 10.1111/coep.12432
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    References listed on IDEAS

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    Cited by:

    1. Taner Turan & Pelin Varol Iyidogan, 2022. "Estimating Fiscal Reaction Functions for Developing and Developed Countries: A Dynamic Panel Threshold Analysis," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 70(5), pages 393-410, May.
    2. Latfe Alhusseinawi, 2020. "The Impact Of Financial Policy Tools In Reducing The Deficit Of The General Budget," European Journal of Accounting, Finance & Business, "Stefan cel Mare" University of Suceava, Romania - Faculty of Economics and Public Administration, West University of Timisoara, Romania - Faculty of Economics and Business Administration, vol. 13(23), pages 1-9, June.
    3. Ricardo Ramalhete Moreira & Edson Zambon Monte, 2023. "Public Debt Path and Long-Memory in Fiscal Data: An Analysis for a Developing Country," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 15(1), pages 1-12, January.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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