scholarly journals DP 0250 - Fiscal Fatigue and Public Debt Limit in Brazil: are we on sustainable path?

2020 ◽  
pp. 1-28
Author(s):  
Rodrigo Mendes Pereira
Keyword(s):  
Public Debt ◽  
Fiscal Sustainability ◽  
Reaction Function ◽  
Monthly Data ◽  
Fatigue Effect ◽  
Advanced Economies ◽  
Debt Dynamics ◽  
Fiscal Reaction Function ◽  
The Government

In this paper I use Ghosh et al. (2013) approach to assess Brazil’s fiscal sustainability, fiscal fatigue, and public debt limit. Using monthly data for the last 21 years, I estimate Brazil’s fiscal reaction function and an eventual fiscal fatigue effect, which is a lack of government’s will (or capability) to implement higher primary surpluses as a reaction to higher levels of debt. I show that fiscal fatigue occurs at relatively mild levels of debt in Brazil. I also define Brazil’s debt limit, which is the precise level of debt/GDP ratio above which the debt dynamics becomes explosive, public debt becomes unpayable, and the government invariably defaults. I show that the debt limit in Brazil is much lower than the limits that have been estimated for advanced economies.

scholarly journals Kesinambungan fiskal dan estimasi fiscal reaction function Indonesia tahun 1977-2017

2019 ◽  
Vol 4 (3) ◽  
pp. 267-283
Author(s):  
Akhmad Solikin ◽  
Hilda Choirunnisah
Keyword(s):  
Real Exchange Rates ◽  
Commodity Prices ◽  
Fiscal Sustainability ◽  
Reaction Function ◽  
Debt Burden ◽  
Distributed Lag ◽  
Reaction Functions ◽  
Fiscal Reaction Function ◽  
The Government

This study aims to identify whether Indonesian fiscal condition in 1977–2017 is sustainable as measured by the government responses to debt burden. Studi on fiscal sustainability is very important since failing to identify its occurrence and determinants will detrimental to fiscal and macroeconomic policy. This study uses Auto-Regressive Distributed Lag – Error Correction Mechanism (ARDL-ECM) to estimate short-term and long-term fiscal reaction functions. The result shows that in the long-term the government responds an increase in debt burden by increasing its primary balance and thus it confirms the existence of fiscal sustainability. Furthermore, by estimating fiscal reaction function this study finds that in the long run exchange rate and Asian Financial Crisis in 1998 have significant effects on primary balance; while in the short run real exchange rates, 1998 economic crisis, and commodity prices  affect the primary balance.

scholarly journals Estimating the Fiscal Reaction Function for Namibia

2020 ◽  
pp. 94-108
Author(s):  
Evelina Julius ◽  
Jacob M. Nyambe ◽  
Omu Kakujaha Matundu
Keyword(s):  
Fiscal Sustainability ◽  
Output Gap ◽  
Percentage Increase ◽  
Reaction Function ◽  
Debt Accumulation ◽  
Long Run ◽  
Primary Deficit ◽  
Fiscal Reaction Function ◽  
The Government ◽  
Debt Levels

This paper estimates the fiscal reaction function for Namibia with the aim of establishing how the Government of Namibia responds to changes in debt levels. The VECM and the ARDL models were adopted to explore the reactions between the two variables. Both the VECM and ARDL confirmed the long-run relationship between the variables and showed that government increases its primary balance (i.e. reduce its primary deficit) by 0.07 percent and 0.31 percent, respectively, for every 1 percentage increase in debt levels. On one end, the results from VECM indicated that fiscal policy in Namibia is pro-cyclical, reflected in a positive estimated effect of the output gap on the primary balance. On the other end, the ARDL model indicated an insignificant relationship between the output gap and the primary balance. The debt targeting analysis performed provides evidence that it is not enough to only reduce the primary deficit for fiscal sustainability. Instead, it is important to grow the economy and improve the ability of debt repayment so that debt accumulation declines. Thus, the paper recommends that Namibia needs not only a positive, but also a strong economic growth if it is to make significant impacts on the debt level and guarantee both debt and fiscal sustainability.

ASSESSING THE RISKS TO THE JAPANESE GOVERNMENT BOND MARKET

2013 ◽  
Vol 04 (01) ◽  
pp. 1350002 ◽  
Author(s):  
WAIKEI RAPHAEL LAM ◽  
KIICHI TOKUOKA
Keyword(s):  
Public Debt ◽  
Financial Distress ◽  
Financial Stability ◽  
Debt Crisis ◽  
Japanese Government ◽  
Government Bond ◽  
Bond Yields ◽  
Market Capacity ◽  
Debt Dynamics ◽  
The Government

Despite the rise in public debt, Japanese Government Bond (JGB) yields have remained low and stable, supported by steady inflows from household and corporate sectors, high domestic ownership of JGBs, and safe-haven flows in light of ongoing European debt crisis. Nonetheless, the market capacity to absorb new government debt will likely decline over time as the population ages, posing risks for the JGB market. This paper examines the key risks of the JGB market, including a decline of private sector savings and potential spillovers from global financial distress, which could push up the government bond yields. A sharp rise in interest rate could pose challenges on public debt dynamics and financial stability in Japan. In that regard, more ambitious fiscal reforms to reduce public debt will help limit these risks.

The macroeconomic effects of fiscal consolidation policies in Greece

2017 ◽  
Vol 9 (1) ◽  
pp. 34-49 ◽  
Author(s):  
Stephanos Papadamou ◽  
Trifon Tzivinikos
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Wage Policy ◽  
Government Consumption ◽  
Content Type ◽  
Indirect Taxes ◽  
Debt Dynamics ◽  
Policy Shocks ◽  
The Government ◽  
A Minor

Purpose This paper aims to investigate the effects of contractionary fiscal policy shocks on major Greek macroeconomic variables within a structural vector autoregression framework while accounting for debt dynamics. Design/methodology/approach The sign restriction approach is applied to identify a linear combination of government spending and government revenue shock simultaneously while accounting for debt dynamics. Additionally, output and unemployment responses to fiscal shocks under different scenarios concerning the amalgamation of austerity measures are considered. Findings The results indicate that a contractionary consumption policy shock, namely, a 1 per cent decrease in government consumption and a 1 per cent increase in indirect taxes, is preferred, as it produces a minor decrease in output and substantially decreases public debt, while a contractionary wage policy shock is suitable only when the government aims to sharply reduce public debt, as the consequences for the economy are harsh. A contractionary investment policy shock is not recommended, as it triggers a rise in unemployment and a fall in output, while the effect on the public debt is minor. Practical implications Policymakers should focus their efforts on reducing unproductive government consumption on the expenditure side. Concerning revenues, the reinforcement of tax administration is recommended to ensure that indirect taxes will be collected. Originality/value This paper contributes to the existing literature by providing a disaggregated analysis of the effects of fiscal policy actions in Greece by implementing several fiscal policy scenarios and accounting for the level of public debt. All scenarios are in the vein of the economic adjustment programs guidelines.

scholarly journals Sustainability of Brazilian fiscal policy, once again: corrective policy response over time

2015 ◽  
Vol 45 (2) ◽  
pp. 437-458
Author(s):  
Viviane Luporini
Keyword(s):  
Fiscal Policy ◽  
Policy Response ◽  
Reaction Function ◽  
Average Increase ◽  
Monthly Data ◽  
Percent Increase ◽  
Fiscal Reaction Function ◽  
Primary Surplus ◽  
Sample Window ◽  
Over Time

<title>Abstract</title><p>This paper estimates a fiscal reaction function for Brazil and investigates how the government's fiscal reaction has changed over time when controlling for cyclical variations in output and the relative participation of indexed debt. Using monthly data since 1991, we estimate a rolling reaction function with a one observation step and a sample-window of 12 observations. Our results indicate that the government's fiscal response has been such that a one percent increase in the debt-GDP ratio can be associated to an average increase in the primary surplus of approximately 0.096% over GDP or 9.6 basis points; the government's fiscal reaction has become more stable but less responsive to the debt-income level after 2000 and assumed a declining trend after 2006.</p>

scholarly journals Assessing public debt sustainability for Costa Rica using the fiscal reaction function

2020 ◽  
Vol 1 (1-4) ◽  
pp. 100014
Author(s):  
Valerie Lankester-Campos ◽  
Kerry Loaiza-Marín ◽  
Carlos Monge-Badilla
Keyword(s):  
Costa Rica ◽  
Public Debt ◽  
Reaction Function ◽  
Debt Sustainability ◽  
Fiscal Reaction Function

scholarly journals Inflation and Public Debt Reversals in Advanced Economies

2019 ◽  
Vol 18 (297) ◽  
Author(s):  
Ichiro Fukunaga ◽  
Takuji Komatsuzaki ◽  
Hideaki Matsuoka
Keyword(s):  
Public Debt ◽  
Inflation Rate ◽  
Financial Repression ◽  
The Public ◽  
Debt Burden ◽  
Advanced Economies ◽  
Debt Dynamics ◽  
The Difference ◽  
The Impact ◽  
Local Projections

This paper quantitatively assesses the effects of inflation shocks on the public debt-to-GDP ratio in 19 advanced economies using simulation and estimation approaches. The simulations based on the debt dynamics equation and estimations of impulse responses by local projections both suggest that a 1 percentage point shock to inflation rate reduces the debt-to-GDP ratio by about 0.5 to 1 percentage points. The results also suggest that the impact is larger and more persistent when the debt maturity is longer, but the difference from the benchmark case is not significant. These results imply that modestly higher inflation, even if accompanied by some financial repression, could reduce public debt burden only marginally in many advanced economies.

scholarly journals Fiscal Sustainability and the Fiscal Reaction Function for South Africa

2011 ◽  
Vol 11 (69) ◽  
pp. 1 ◽  
Author(s):  
Charl Jooste ◽  
Alfredo Cuevas ◽  
Ian C. Stuart ◽  
Philippe Burger ◽  
◽  
...  
Keyword(s):  
South Africa ◽  
Fiscal Sustainability ◽  
Reaction Function ◽  
Fiscal Reaction Function

Policy asymmetries and fiscal sustainability: evidence from Nigeria

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Opeoluwa Adeniyi Adeosun ◽  
Olumide Steven Ayodele ◽  
Olajide Clement Jongbo
Keyword(s):  
Fiscal Policy ◽  
Public Debt ◽  
Markov Switching ◽  
Fiscal Sustainability ◽  
Constant Parameter ◽  
Policy Rule ◽  
Content Type ◽  
Sustainability Analysis ◽  
Debt Dynamics ◽  
Fiscal Balance

PurposeThis study examines and compares different specifications of the fiscal policy rule in the fiscal sustainability analysis of Nigeria.Design/methodology/approachThis is methodologically achieved by estimating the baseline constant-parameter and Markov regime switching fiscal models. The asymmetric autoregressive distributed lag fiscal model is also employed to substantiate the differential responses of fiscal authorities to public debt.FindingsThe baseline constant-parameter fiscal model provides mixed results of sustainable and unsustainable fiscal policy. The inconclusiveness is adduced to instability in primary fiscal balance–public debt dynamics. This makes it necessary to capture regime switches in the fiscal policy rule. The Markov switching estimations show a protracted fiscal unsustainable regime that is inconsistent with the intertemporal budget constraint (IBC). The no-Ponzi game and debt stabilizing results of the Markov switching fiscal model further revealed that the transversality and debt stability conditions were not satisfied. Additional findings from the asymmetric autoregressive model estimation show that fiscal consolidation responses vary with contraction and expansion in output and spending, coupled with downturns and upturns in public debt dynamics in both the long and short run. These findings thus confirm the presence of asymmetries in the fiscal policy authorities' reactions to public debt. Further, additional evidences show the violation of the IBC which is exacerbated by the deleterious effect of the pro-cyclical fiscal policy response in boom on the improvement of the primary fiscal balance.Originality/valueThis study deviates from the extant literature by accommodating time variation, periodic switches and fiscal policy asymmetries in the fiscal sustainability analysis of Nigeria.

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