Abstract
We assess, by means of system GMM, how Stock Flow Adjustments (SFA) affect the debt-to-GDP ratio in a panel of 65 countries (covering both developed and emerging and low-income countries) between 1985-2014. In addition, we inspect the role of fiscal rules in affecting SFAs. We find that SFAs positively contribute to the change in the debt-to-GDP ratio with a coefficient close to one. Fiscal rules in general did not led governments to a systematic use of SFAs to lower budget deficits; however, the existence of fiscal rules with monitor compliance contributes to lower the debt level, although the cyclical deficit partly counteracts this desirable effect. The time period matters: the fall in the debt ratio due to the presence of fiscal rules before the crisis was between 1.7 and 4.2 percent of GDP while after the Global Financial Crisis, revenue and debt-based rules did not contribute to the reduction of debt, which was reinforced with large SFAs.
| Original language | English |
|---|---|
| Pages (from-to) | 1-16 |
| Number of pages | 16 |
| Journal | International Review of Economics and Finance |
| Volume | 65 |
| DOIs | |
| Publication status | Published - 1 Jan 2020 |
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Keywords
- Budget deficit
- Filtering
- Fiscal rules
- Government debt
- Intertemporal government budget constraint
- Panel data
- Structural deficit
- System GMM
Cite this
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Stock flow adjustments in sovereign debt dynamics : the role of fiscal frameworks. / Afonso, António; Jalles, João Tovar.
In: International Review of Economics and Finance, Vol. 65, 01.01.2020, p. 1-16.Research output: Contribution to journal › Article
TY - JOUR
T1 - Stock flow adjustments in sovereign debt dynamics
T2 - the role of fiscal frameworks
AU - Afonso, António
AU - Jalles, João Tovar
N1 - Funding agency: Fundacao para a Ciencia e a Tecnologia (FCT) grant nr. UID/ECO/00436/2019
PY - 2020/1/1
Y1 - 2020/1/1
N2 - We assess, by means of system GMM, how Stock Flow Adjustments (SFA) affect the debt-to-GDP ratio in a panel of 65 countries (covering both developed and emerging and low-income countries) between 1985-2014. In addition, we inspect the role of fiscal rules in affecting SFAs. We find that SFAs positively contribute to the change in the debt-to-GDP ratio with a coefficient close to one. Fiscal rules in general did not led governments to a systematic use of SFAs to lower budget deficits; however, the existence of fiscal rules with monitor compliance contributes to lower the debt level, although the cyclical deficit partly counteracts this desirable effect. The time period matters: the fall in the debt ratio due to the presence of fiscal rules before the crisis was between 1.7 and 4.2 percent of GDP while after the Global Financial Crisis, revenue and debt-based rules did not contribute to the reduction of debt, which was reinforced with large SFAs.
AB - We assess, by means of system GMM, how Stock Flow Adjustments (SFA) affect the debt-to-GDP ratio in a panel of 65 countries (covering both developed and emerging and low-income countries) between 1985-2014. In addition, we inspect the role of fiscal rules in affecting SFAs. We find that SFAs positively contribute to the change in the debt-to-GDP ratio with a coefficient close to one. Fiscal rules in general did not led governments to a systematic use of SFAs to lower budget deficits; however, the existence of fiscal rules with monitor compliance contributes to lower the debt level, although the cyclical deficit partly counteracts this desirable effect. The time period matters: the fall in the debt ratio due to the presence of fiscal rules before the crisis was between 1.7 and 4.2 percent of GDP while after the Global Financial Crisis, revenue and debt-based rules did not contribute to the reduction of debt, which was reinforced with large SFAs.
KW - Budget deficit
KW - Filtering
KW - Fiscal rules
KW - Government debt
KW - Intertemporal government budget constraint
KW - Panel data
KW - Structural deficit
KW - System GMM
UR - http://www.scopus.com/inward/record.url?scp=85072634930&partnerID=8YFLogxK
U2 - 10.1016/j.iref.2019.09.007
DO - 10.1016/j.iref.2019.09.007
M3 - Article
VL - 65
SP - 1
EP - 16
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
SN - 1059-0560
ER -