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Debt Affordability in Developed and Emerging Market Economies: The Role of Fiscal Rules

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  • Valencia, Oscar
  • Gomez-Gonzalez, Jose E.
  • Sánchez, Gustavo

Abstract

This paper studies the effect of fiscal rules on debt affordability in a large set of developed and emerging market economies, using a panel data model which allows the inclusion of weakly exogenous regressors, and which deals appropriately with cross-sectional dependence. The results show a positive and significant effect of fiscal rule implementation on public debt affordability which is robust to various model specifications. The effect is stronger for emerging market economies which benefit from the implementation of any fiscal rule. In contrast, developed countries benefit only from high-quality fiscal rules. The findings have important policy implications for fiscal management, especially in emerging market economies.

Suggested Citation

  • Valencia, Oscar & Gomez-Gonzalez, Jose E. & Sánchez, Gustavo, 2022. "Debt Affordability in Developed and Emerging Market Economies: The Role of Fiscal Rules," IDB Publications (Working Papers) 12235, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:12235
    DOI: http://dx.doi.org/10.18235/0004267
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    More about this item

    Keywords

    cross-sectional dependence; debt affordability; weakly exogenous regressors;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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