NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies

Atish R. Ghosh, Jun I. Kim, Enrique G. Mendoza, Jonathan D. Ostry, Mahvash S. Qureshi

NBER Working Paper No. 16782
Issued in February 2011
NBER Program(s):International Finance and Macroeconomics

How high can public debt rise without compromising fiscal solvency? We answer this question using a stochastic ability-to-pay model of sovereign default in which risk-neutral investors lend to a government that displays "fiscal fatigue," because 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 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 projected debt ratios and debt limits.

download in pdf format
   (505 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16782

Published: Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2013. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," Economic Journal, Royal Economic Society, vol. 0, pages F4-F30, 02. citation courtesy of

Users who downloaded this paper also downloaded* these:
Reinhart and Rogoff w15795 From Financial Crash to Debt Crisis
Mendoza and Ostry w12947 International Evidence on Fiscal Solvency: Is Fiscal Policy "Responsible"?
Garcia and Rigobon w10336 A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data
Mendoza and Oviedo w10637 Public Debt, Fiscal Solvency and Macroeconomic Uncertainty in Latin America: The Cases of Brazil, Colombia, Costa Rica, and Mexico
Aizenman and Jinjarak w16539 De facto Fiscal Space and Fiscal Stimulus: Definition and Assessment
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us