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A Stochastic Indicator for Sovereign Debt Sustainability

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  • Jasper Lukkezen
  • Hugo Rojas-Romagosa

Abstract

We propose a stochastic indicator to assess government debt sustainability. This indicator combines the effect of economic uncertainty - represented by stochastic simulations of interest and growth rates - with the expected fiscal response, which provides information on the long-term country-specific attitude towards fiscal sustainability. We apply our framework to postwar data for nine OECD countries and find that our indicator - the potential increase in debt in bad states of the world - distinguishes countries that have sustainability concerns (Italy, Spain, Portugal, and Iceland) from those that do not (the United States, the United Kingdom, the Netherlands, Belgium, and Germany).

Suggested Citation

  • Jasper Lukkezen & Hugo Rojas-Romagosa, 2016. "A Stochastic Indicator for Sovereign Debt Sustainability," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(3), pages 229-267, September.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201609)72:3_229:asifsd_2.0.tx_2-q
    DOI: 10.1628/001522108X1473325697904
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    Cited by:

    1. Westerhout, Ed, 2018. "Paying for the Ageing Crisis : Who, How and When?," Discussion Paper 2018-001, Tilburg University, Center for Economic Research.
    2. Westerhout, Ed, 2018. "Paying for the Ageing Crisis : Who, How and When?," Other publications TiSEM 417903d2-6318-4744-891e-1, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    public debt; fiscal policy; debt sustainability; stochastic simulations;
    All these keywords.

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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