Policy space index: Short-term response to a catastrophic event

What policy space does a country have for a short-term response to a catastrophic event? To quantify this space, the paper proposes a policy space index. The index combines a quantitative, albeit relatively limited and narrow, fiscal space concept with the indicators of nominal monetary space and reserve space. Each nominal policy space indicator is then adjusted for individual country's institutional features, such as the status of its currency, income group, access to capital markets, debt distress level, and the exchange rate regime. The final policy space index is derived as a composite of the three nominal policy space indicators, each adjusted for five institutional features. This index is different from the approach to measure fiscal space at the IMF and requires more work before it can be used operationally. The proposed index allows measuring the overall policy space in each country directly in percent of GDP. By way of illustration, the paper applies the index to the Covid-19 crisis.

Public debt and r-g risks in advanced economies: Eurozone versus stand-alone

Differentials between interest rates on government bonds (r) and economic growth rates (g) are a key determinant of public debt dynamics. What are the predictors of r-g, and what risks do policy-makers face? Applying regression methods to data on 22 OECD countries over 1970-2018 shows that higher public debt levels are not predictive of more unfavourable r-g in both Eurozone and stand-alone countries, where the latter issue debt in their own currency. The Euro Crisis – a period characterised by doubts over whether the ECB would backstop government bond markets – is linked with more unfavourable r-g, but only in Euro periphery countries. Our results suggest that the Eurozone's institutional architecture affects r-g risks. While we find that predicted probabilities of future r – g < 0 are typically significantly higher than 50% across OECD economies under conditions similar to the pre-Covid-19 years, r-g risks are most significant in the Euro periphery.

Testing for multiple bubbles: historical episodes on the sustainability of public debt in Spain, 1850-2020

PurposeThis paper aims to analyze the dynamics of the Spanish public debt-gross domestic product ratio during the period 1850-2020. Design/methodology/approachThis study uses a recent procedure to test for recurrent explosive behavior (Phillips et al., 2011;Phillips et al., 2015a, 2015b) to identify episodes of explosive public debt dynamics and also the episodes of fiscal adjustments over this long period. FindingsThe identified episodes of explosive behavior of public debt coincided with fiscal stress events, whereas fiscal adjustments and changes in economic policies stabilized public finances after periods of explosive dynamics of public debt. Originality/valueThe longer than usual span of the data should allow the authors to obtain some more robust results than in most of previous analyses of long-run sustainability.

The Case for A Global Excess Profits Tax: A Response to Dr. Tarcísio Diniz Magalhães & Professor Allison Christians

In striving to slow the spread of the COVID-19 pandemic, governments across the globe acted quickly to implement various "stay-at- home" orders and bans on all "non-essential activities." While these actions were likely effective in slowing the spread of the virus, the economic impacts were felt almost immediately. The US deficit rose to $3.1 trillion following massive spending to aid individuals and small businesses. Internationally, governments have been increasing their debt loads to combat both the health and financial impacts of the pandemic. Indeed, by the end of 2020, the international debt load increased to a record-breaking $281 trillion. Almost as quickly, various proposals have been offered regarding how to mitigate this pandemic-fueled deficit. One solution offered is the return of a historical tax scheme-an excess profits tax. Excess profits taxes have historically been applied both domestically and internationally during times of war. Although there are variations in how an excess profits tax is calculated, traditionally, an excess profits tax is applied to those companies who earn returns in excess of a set "normal" rate of return.

Fiscal Space Policies for Sustainable Development and Debt Relief: Empirical Analysis in West African Countries

The uncertainty that the COVID-19 pandemic has brought demonstrates that income redistribution and traditional debt relief mechanisms are insufficient to meet public spending needs, mitigate external debt, and comply with the UN's Sustainable Development Goals (SDGs), which aim to reduce multilateral debt to sustainable levels. Also, West African countries have focused their attention on the long-term fight against poverty and inequality and strengthening their social programs, especially in primary health care and macroeconomic stability. However, for more than a decade, the developing and least developed countries of West Africa have faced rapidly weakening macroeconomic conditions, combining several interrelated crises such as the sharp decline in oil prices, volatile financial markets and tourism disruptions, a global recession, the crisis of climate change, and shortages of food and energy, along with the economic contraction of COVID-19. Data from these countries show that health spending increases economic growth, minimizes infant mortality rates, and reduces debt. Furthermore, increasing government spending efficiency reduces the total debt and improves the health sector, in particular.

Public Debt Sustainability in Indonesia after Financial Crisis and During COVID-19 Pandemic

The Developing countries are particularly vulnerable to shocks, such as the global financial crisis and the COVID-19 pandemic. The economic crisis increased external public debt to stabilize the economy and improve people's welfare. High external debt puts the debt in an unsustainable condition. This study aims to measure the debt sustainability of external public debt in Indonesia from 2008-2020. We used the Threshold Value of The Debt Sustainability Framework for Low-Income Countries (LIC-DSF) and the Solvency Rate of External Debt (SRED) as a better combination for measuring debt sustainability in Indonesia. The results showed external public debt was at a low-risk threshold after the global financial crisis. However, the impact of COVID-19 has caused the ratio of external public debt interest payment to tax revenue to be within a high-risk threshold value. The SRED value shows a minus number from 2012-2020 caused by the worsening current account balance and net capital account values. The analysis of debt sustainability may be able to encourage a prudent and sustainable the Indonesian budget management policy. © 2023 WITPress. All rights reserved.

Debt to the Penny and US Dollar Index: a lead-lag relationship of the US economy under impacts of the Covid-19 outbreak

Purpose: This study investigates the interactions between the US daily public debt and currency power under impacts of the Covid-19 crisis. Design/methodology/approach: The authors employ the multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) modeling to explore the interactions between daily changes in the US Debt to the Penny and the US Dollar Index. The data sets are from April 01, 1993, to May 27, 2022, in which noticeable points include the Covid-19 outbreak (January 01, 2020) and the US vaccination campaign commencement (December 14, 2020). Findings: The authors find that the daily change in public debt positively affects the USD index return, and the past performance of currency power significantly mitigates the Debt to the Penny. Due to the Covid-19 outbreak, the impact of public debt on currency power becomes negative. This effect remains unchanged after the pandemic. These findings indicate that policy-makers could feasibly obtain both the budget stability and currency power objectives in pursuit of either public debt sustainability or power of currency. However, such policies should be considered that public debt could be a negative influencer during crisis periods. Originality/value: The authors propose a pioneering approach to explore the relationship between leading and lagging indicators of an economy as characterized by their daily data sets. In accordance, empirical findings of this study inspire future research in relation to public debt and its connections with several economic indicators. Peer review: The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-08-2022-0581 © 2023, Emerald Publishing Limited.

Public Debt, Governance, and Growth in Developing Countries: An Application of Quantile via Moments

Developing countries often encounter budget deficits by taking loans from internal and external sources. The effectiveness of public debt has been a long debate in the seminal and empirical literature. In this study, we investigate the effectiveness of public debt on economic growth, incorporating the role of governance in 44 developing countries. In doing so, we applied the Quantile Via Moments approach to analyze heterogeneous panel data ranging 1990–2000 considering the scale and location properties under different economic circumstances. Our results show that public debt impedes economic growth in all quantiles. Our empirical finding corroborates our proposition that in the presence of good governance, public debt promotes economic growth in the medium to higher quantiles. The empirical findings of this study confirm that governance is far more important in promoting economic growth.

The Fiscal Impact of Quantitative Easing

The Bank of Canada's purchases of securities under quantitative easing are tantamount to an exchange of a fixed interest rate expense for a floating rate paid on certain liabilities of the Bank of Canada. They also imply that the Government of Canada remains liable for potential losses on these assets. This significantly increases the proportion of federal government debt financed in the money market, exposing the Government of Canada to higher interest rate risk than indicated in the budget documents and has resulted in significant losses to date. The exit from quantitative easing in an anti-inflationary environment poses significant challenges for monetary policy and points to a difficult fiscal situation. © Canadian Public Policy/Analyse de politiques, December/décembre 2022.

Should fiscal policies be centralized in a monetary union? A dynamic game approach.

In this paper we analyze dynamic interactions in a monetary union with three fiscal players (the governments of the countries concerned) and a common central bank in the presence of exogenous shocks. The model is calibrated for the euro area and includes a fiscally more solid core block denoted as country 1 as well as a fiscally less solid periphery block represented by countries 2 and 3. Introducing two periphery countries allows us to capture different attitudes of the periphery countries towards the goal of sustainable fiscal performance. Moreover, different coalition scenarios are modelled in this study including a fiscal union, a coalition of periphery countries and a coalition of fiscal-stability oriented countries. The exogenous shocks are calibrated in such a way as to describe the last major crises in the euro area, namely the financial crisis, the European sovereign debt crisis, the Covid-19 crisis, and the Ukraine war (energy price) crisis. Using the OPTGAME algorithm we calculate a cooperative Pareto and non-cooperative feedback Nash equilibrium solutions for the modelled scenarios. The fully cooperative solution yields the best results. The different non-cooperative scenarios allow insights into the underlying trade-off between economic growth, price stability and fiscal stability.

A Fiscal Perspective on Policy Responses to COVID-19: Evidence from the Emerging Economy of India

The COVID-19 health crisis became a global economic crisis with mitigation measures leading to a steep decline in economic activity, disrupting demand and supply. To attenuate the economic impact of the pandemic, monetary and fiscal policies were used by governments, central banks and supranational institutions. This article analyzes the implications of fiscal and monetary policies used in India in response to the COVID-19 pandemic on the country's public debt. India's adoption of a unique calibrated expenditure strategy through fiscal stimulus provided a cushion to mounting expenditure requirements in a scenario of falling government revenue. Widening fiscal deficits due to the increased need for fiscal spending on the one hand, and a decline in revenue generation owing to fall in economic activities on the other, saw a surge in India's public debt. Coordinated efforts by monetary and fiscal authorities through conventional and non-conventional measures added new dimensions to India's debt management strategy. The unprecedented magnitude of the crisis pushed the Government of India to relax its debt and deficit indicators until the economy can move back to normalcy.

Impact of COVID-19 Pandemic on Public Debt - International Perspective

A direct consequence of the pandemic was the widespread occur-rence, and in many OECD countries - a growing public finance imbalance. The paper presents the results of research on the dynamics and structure of public debt, its relation to GDP and to the net borrowing of the general government sector. The main purpose of the article is to show the impact of the pandemic on the size and structure of public debt in the largest EU economies, as well as in other selected OECD countries. An attempt was also made to identify factors that had a significant impact on the amount of public debt during the pandemic. The new debt was used primarily to finance net borrowing and, ultimately, to support the economy and selected social groups. However, as the article points out, the new debt to a significant extent financed the increase in liquidity in the public sector, and in some cases - a larger volume of loans granted by public sector entities and their equity investments. © 2022 Michał Bitner et al., published by Sciendo.

Debt Sustainability of Latin American Countries in the post‐COVID Economy

Annually growing public debt of Latin American countries is a source of a consistent increase in regional crisis potential. The COVID-19 pandemic has exacerbated political instability and deepened socio-economic imbalances in the region. The chronic dependence on debt financing increases the region's vulnerability to external shocks and makes it much more challenging to implement public policies to achieve the UN Sustainable Development Goals. The purpose of the article is to reveal the increasing nature of the debt risks inherent in the Latin American countries, and to propose measures to overcome them. The authors summarize the views of leading Russian and foreign experts on the debt sustainability of the region. Based on the statistical data of international organizations, regional development institutions, as well as analytical materials published by Bloomberg, Fitch, White & Case or Deloitte, the authors analyze the approaches to solving the Latin American debt problem. However, considering recent debt dynamics, new public borrowings may cause a deterioration of the regional debt sustainability in the future. This issue reinforces the uncertainty in international investment circles regarding the future solvency of the Latin American region. The situation in the Latin American countries is exacerbated by the uncertainty whether positive rates of economic growth resume in the medium term that have been lost due to volatile global commodity prices. The study examines the prospects for regional economic stabilization in Latin America and the Caribbean, including through the use of new debt financing mechanisms to meet current financial needs and minimize the risks of financial vulnerability. © 2022, RUDN UNiversity. All rights reserved.

Public Debt and Economic Growth in India: The New Evidence

The study gives new evidence on the effects of public debt on economic growth in India with key macroeconomic indicators from 1980 to 2019. In the past decade, and after the COVID-19 pandemic, there is a substantial rise in public debt, which reached 90% of the GDP in April 2021. Therefore, it is imperative to study the impact of different public debt sources on the Indian economy to help policymakers frame informed debt management policies. The long-run equilibrium relationship and cointegrating coefficients are calculated using Johansen cointegration and fully modified ordinary least square techniques. Toda and Yamamoto's (1995) Granger causality test is used as a short-run diagnostic test for the long-run equilibrium relationship. The study's major findings suggest that domestic debt, total factor productivity (TFP) and exports are the major determinants of economic development in the long run. In contrast, economic prosperity determines the growth of external debt, debt service payments and TFP in the short run. It is recommended that the government should control and channel public debt productively for favourable growth effects.

Pre-COVID-19 evaluation of external debt, corruption and economic growth in South Africa

PurposeThis study is a pre-COVID-19 exposition of the existing situation about external debt-GDP relationship, incorporating corruption into the hypothesis, making South Africa the object of the study. The aim is to examine the causal relationship between corruption, economic growth and external debt, and in the end proffer solutions to the problems arising therefrom.Design/methodology/approachThe study employed ARDL technique on time series data running from 1990 to 2019 with real gross domestic product as the dependent variable and external debt, external debt servicing, corruption, inflation and capital formation as regressors. Necessary tests that include unit root, cointegration, CUSUM and CUSUMSq, normality, serial correlation and heteroscedasticity were performed on the model.FindingsThe study shows that corruption, inflation and external debt servicing exert negative influences on economic growth while the effect of investment on growth was positive. External debt's effect in the short run was positive while its long-run effect on growth was negative. Among other things, the need to improve and strengthen public institutions in addition to targeting tax evaders and avoiders for increased government revenue were emphasized.Originality/valueThe study incorporates corruption into the country specific debt-GDP debate as against earlier studies that excluded corruption in their time series analysis or that were cross-country based. The authors also exposit the existing knowledge of the debt-GDP hypothesis before the outbreak of COVID 19 pandemic. This is expected to serve as a precursor to subsequent studies on the rising debt of South Africa during and after the pandemic.

Τhe effects of fiscal consolidation in OECD countries

Fiscal consolidation is essential for safeguarding fiscal sustainability in many OECD countries in the post COVID-19 era. Several empirical studies have presented evidence in favor of expansionary fiscal consolidations. This paper using the local projection method, investigates the short-to medium-term effects of unanticipated fiscal consolidation shocks in 24 OECD countries from 1990 to 2019. Fiscal adjustment is contractionary according to our baseline model. This effect is more pronounced in recessions, in high debt countries, in closed economies and when monetary conditions are tight. Therefore, the decline in the public debt ratio is relatively small. Spending-based adjustments that are implemented in recessions, in periods with tight monetary conditions and when the debt ratio is above 80% are self-defeating. Fiscal consolidations that are initiated in expansions, in low debt countries, when monetary conditions are loose and in open economies can be expansionary and lead to a more pronounced decline in the debt ratio. © 2022 Elsevier B.V.

Public Debt after the Covid-19

The Covid-19 pandemic brought a number of challenges to all countries of the world. Among the most affected areas is the economy that is going through a difficult situation, that also we should see as an opportunity to restart the global economy in another point of view. But the question that arises is where to start. In fact, some boundaries need to be considered. One of the main aspects of the economy, the limits of which are extremely important, is public debt. This article presents an overview of the public debt situation, how it is projected to be by the end of 2020, providing some proposal on how public debt can be reduced. There are three main questions the article poses: 1. Has the public debt of developed countries reached unsustainable levels? 2. How will the debt be refinanced after the pandemic? 3. Where will states find the money to cover the deficit, but also to pay off dues? The first problem encountered is that the debt is being repaid with more debts, making central banks use the technique of injecting money into the economy. In all economic crises, central banks have increased money in circulation that is a temporary solution and does not last forever. In the article is treated the monetary policy that might be used from the government to pursue the period after the pandemic. Each option comes with a solution, but that solutions are not "ideal". The side effects of these options can bring unpleasant results.

Economic growth and sustainability of public finances: evidence from Morocco

This study focuses on the sustainability of public finances in relation to economic growth in Morocco for the period from 1987 to 2019. We set out to explore therewith the non-linear relationship between government size, the level of fiscal discipline and economic growth. This issue at hand has attracted broad public interest and decision-makers’ attention in Morocco, especially after the financial crisis of 2008 and during the COVID-19 pandemic. In order to determine government optimal size, we apply the Hansen's approach which postulates the coexistence of different fiscal regimes conditioned by the public debt, government expenditures, and tax revenues in the form of a non-linear inverted-U curve. These regimes are separated by an optimal threshold maximizing economic growth below which the impact is positive and above which the impact becomes negative, as the rising side of the curve is interpreted as consequence of higher taxes providing more resources for public investment, which in turn promotes growth. Once the economy reaches the slippery side of the curve, more taxes and excessive public debt become more distortionary and negatively correlated with economic growth. Our findings indicate that Morocco is relatively in a prudential fiscal stance with recessive effects on growth. [ FROM AUTHOR]

Τhe effects of fiscal consolidations in OECD countries

Fiscal consolidation is essential for safeguarding fiscal sustainability in many OECD countries in the post COVID-19 era. Several empirical studies have presented evidence in favor of expansionary fiscal consolidations. This paper using the local projection method, investigates the short-to medium-term effects of unanticipated fiscal consolidation shocks in 24 OECD countries from 1990 to 2019. Fiscal consolidations are contractionary according to our baseline model. This effect is more pronounced in recessions, in high debt countries, in closed economies and when monetary conditions are tight. Therefore, the decline in the public debt ratio is relatively small. Spending-based adjustments that are implemented in recessions, in periods with tight monetary conditions and when the debt ratio is above 80% are self-defeating. Fiscal consolidations that are initiated in expansions, in low debt countries, when monetary conditions are loose and in open economies can be expansionary and lead to a more pronounced decline in the debt ratio.

Crisis, austerity, and fiscal expenditure in Greece: recent experience and future prospects in the post-COVID-19 era

This paper provides a discussion of the relationships between austerity, the macroeconomic performance of the Greek economy, debt sustainability, and the provision of healthcare and other social services since 2010. It explains that austerity was imposed in the name of debt sustainability. However, there was a vicious cycle of recession and austerity: each round of austerity measures led to a deeper recession, which increased the debt-to-GDP ratio and therefore undermined the goal of debt sustainability and led to another round of austerity. One of the effects of the austerity policies was the significant reduction of healthcare expenditure, which made Greece more vulnerable to the recent pandemic. Finally, it shows how recent pre-COVID debt sustainability analyses projected that Greek public debt would become unsustainable even under minor deviations from an optimistic baseline. The pandemic shock will thus lead to an explosion of public debt. This brings again to the fore the need for a restructuring of Greek public debt, and other policies that will address the eurozone’s structural imbalances. © 2022 Edward Elgar Publishing Ltd.