Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies

Bibliographic Data

ID9719241
AuthorsAtish R Ghosh (International Monetary Fund), Jun I Kim (International Monetary Fund), Enrique G Mendoza (International Monetary Fund), Jonathan D Ostry (0000-0002-0315-8378, International Monetary Fund), Mahvash Saeed Qureshi (University of Pennsylvania)
Year2013
Volume123
Issue566
PagesF4-F30
Publication date2013-02-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/ecoj.12010
OpenAlexW2016510098
LanguageEN
Citations received40
References cited16

How high can public debt rise without compromising fiscal solvency? We answer this question using a stochastic model of sovereign default in which risk-neutral investors lend to a government that displays ‘fiscal fatigue’, whereby its ability to increase primary balances cannot keep pace with rising debt. As a result, the government faces an endogenous debt limit beyond which debt cannot be rolled over. Using data for 23 advanced economies over the period 1970–2007, we find evidence of a fiscal reaction function with these features, and use it to compute ‘fiscal space’, defined as the difference between current debt ratios and the estimated debt limits

Debt · Debt levels and flows · Debt ratio · Debt-to-GDP ratio · Economics · Fiscal policy · Fiscal space · Fiscal sustainability · Government Debt · Internal debt · Macroeconomics · Monetary economics · Solvency · Sovereign debt · Sovereign default · Sovereignty · Fiscal Policies and Political Economy · Global Financial Crisis and Policies · Monetary Policy and Economic Impact

Tools

Open DOISci-HubOpen Access