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The effects of fiscal opacity on sovereign credit spreads

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  • Peat, Maurice
  • Svec, Jiri
  • Wang, Jue

Abstract

Using the Open Budget Index of 45 advanced and emerging countries and their sovereign credit default swap (CDS) spreads, we find evidence that the sovereign credit market differentiates countries with higher fiscal opacity than others, by way of an opacity premium. We further show that the premium is levied on the entire credit spread term structure but not uniformly over the range of the opacity measure and across countries. While we identify market disciplinary effects on fiscal opacity, it does not replace the need for efforts to set global standards and promote compliance.

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  • Peat, Maurice & Svec, Jiri & Wang, Jue, 2015. "The effects of fiscal opacity on sovereign credit spreads," Emerging Markets Review, Elsevier, vol. 24(C), pages 34-45.
    • Handle: RePEc:eee:ememar:v:24:y:2015:i:c:p:34-45
    DOI: 10.1016/j.ememar.2015.05.001
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    2. Piotr Ciżkowicz & Grzegorz Parosa & Andrzej Rzońca, 2022. "Fiscal tensions and risk premium," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(3), pages 833-896, August.
    3. de Mendonça, Helder Ferreira & Baca, Adriana Cabrera, 2022. "Fiscal opacity and reduction of income inequality through taxation: Effects on economic growth," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 69-82.
    4. Andrian, Leandro Gaston & Rodríguez, César M. & Valencia, Oscar, 2024. "Surges in the Shadows: Stock-Flow Adjustments and Public Debt Spikes," IDB Publications (Working Papers) 13725, Inter-American Development Bank.
    5. Montes, Gabriel Caldas & da Cunha Lima, Luiza Leitão, 2018. "Effects of fiscal transparency on inflation and inflation expectations: Empirical evidence from developed and developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 26-37.
    6. Gabriel Caldas Montes & Iven Silva Valpassos, 2018. "Discretionary fiscal policy and sovereign risk," Economics Bulletin, AccessEcon, vol. 38(3), pages 1343-1365.
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    8. Carlos Mauro Cárdenas Cardona & Juan Camilo Galvis Ciro, 2020. "La comunicación fiscal y sus efectos sobre los retornos de los títulos públicos: una aproximación empírica para el caso colombiano," Ensayos de Economía 18309, Universidad Nacional de Colombia Sede Medellín.
    9. Montes, Gabriel Caldas & Nicolay, Rodolfo & Pereira, Flavio, 2022. "Does fiscal sentiment matter for sovereign risk?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 18-30.
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    12. Wang, Qunwei & Liu, Mengmeng & Xiao, Ling & Dai, Xingyu & Li, Matthew C. & Wu, Fei, 2022. "Conditional sovereign CDS in market basket risk scenario: A dynamic vine-copula analysis," International Review of Financial Analysis, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    Sovereign credit risk; Fiscal opacity; Open Budget Index; Sovereign CDS;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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