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Estimation of maximum debt for emerging countries: An analysis by fiscal reaction function

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Listed:
  • Rai da Silva Chicoli
  • Siegfried Bender

Abstract

Through a fiscal reaction function that verifies the hypothesis of fiscal fatigue, for a group of 19 emerging countries over the period 2003-2016, and with hypothesis about the difference between interest rate and economic growth, this article seeks to obtain the debt limit for this group of countries. As a result, we confirm the hypothesis of fiscal fatigue, even for robustness exercises, with a reduction of marginal primary result to levels of debt around 70% of GDP and negative marginal primary result around 110% of GDP, well below the results for advanced economies around 100% and 150% of GDP, respectively. In addition, we observed average debt limit around 154% and 128% of GDP for deterministic and stochastic cases, with a significant fiscal space for most countries, except for Croatia, Brazil and Hungary, where a fiscal adjustment must be done to reduce current debt.

Suggested Citation

  • Rai da Silva Chicoli & Siegfried Bender, 2019. "Estimation of maximum debt for emerging countries: An analysis by fiscal reaction function," Working Papers, Department of Economics 2019_44, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2019wpecon44
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    References listed on IDEAS

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    More about this item

    Keywords

    Debt Limit; Fiscal Fatigue; Fiscal Policy;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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