Estimating the Fiscal Reaction Function for Namibia

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.

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

Discussion Paper ◽

10.38116/dp250 ◽

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.

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

Indonesian Treasury Review Jurnal Perbendaharaan Keuangan Negara dan Kebijakan Publik ◽

10.33105/itrev.v4i3.144 ◽

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.

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Estimating a Fiscal Reaction Function for Nigeria

Central Bank of Nigeria Journal of Applied Statistics ◽

10.33429/cjas.11120.2/5 ◽

2020 ◽

pp. 35-63

Author(s):

Patricks Ogiji

Keyword(s):

Reaction Model ◽

Reaction Function ◽

Budget Deficits ◽

Long Run ◽

Gradual Process ◽

Fiscal Balance ◽

Fiscal Reaction Function ◽

Generation Capacity ◽

The Government ◽

The Impact

The study examines the determinants of fiscal balance and the impact of the selected macroeconomic variables on the primary balance of government. It aims to estimate the fiscal reaction function for Nigeria and determine whether the implementation of fiscal policy is sustainable in the long-run. A Fiscal Reaction model was developed and ARDL technique was used to establish the relationships and interactions among the variables. The study investigated whether the fiscal measures pursued by the government from 2000:Q1 to 2018:Q4 was adequate in addressing the accumulation of huge debt. The analysis of the stylized facts reveals that the government had continued to run budget deficits for almost the entire period, except for a few period. The public debt to GDP, which is a major determinant of the primary balance, is negative and significant implying that a fiscal rule that encourages a strong reduction in debt-to-GDP levels would result in substantial pressure for Nigeria to run large primary surpluses in the future. The CUSUM and CUSUMSQ tests show the recursive residual plots of the fiscal reaction function are within the 5 per cent critical lines, hence, providing evidence of stable fiscal reaction function for Nigeria. The study thus, recommends that, apart from the urgent need for the fiscal authorities to adopt urgent reforms to discourage huge debt accumulation, improve revenue generation capacity and more fundamentally, expenditure switching to improve the quality of expenditure, the transition from primary deficits to primary surpluses should follow a gradual process.

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Fiscal Sustainability in the European Countries: A Panel ARDL Approach and a Dynamic Panel Threshold Model

Sustainability ◽

10.3390/su12208505 ◽

2020 ◽

Vol 12 (20) ◽

pp. 8505 ◽

Cited By ~ 1

Author(s):

María del Carmen Ramos-Herrera ◽

María A. Prats

Keyword(s):

Threshold Model ◽

Fiscal Sustainability ◽

Causality Test ◽

Panel Ardl ◽

Long Run ◽

Ardl Approach ◽

Panel Granger Causality ◽

Potential Gdp ◽

The Government ◽

First Time

We analyze the fiscal sustainability hypothesis for a panel of 20 European Union countries from 2000 to 2019. In particular, we employ new econometric methodologies that, to the best of our knowledge, are applied for the first time to the study of sovereign fiscal policy sustainability in these economies. Specifically, we estimate the panel ARDL technique, distinguishing between short- and long-run coefficients because the order of integration of our variables is not the same. Moreover, a panel threshold model with endogeneity is considered to investigate whether, departing from a particular threshold, there is different behavior between the government primary balance and public debt, both taken as a ratio of potential GDP. Finally, the panel Granger causality test is implemented to determine the direction of causality or the existence of bidirectional causality.

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Testing the fiscal fatigue phenomenon in Turkey using a long-run non-linear fiscal reaction function approach

Quantitative Finance and Economics ◽

10.3934/qfe.2019.4.645 ◽

2019 ◽

Vol 3 (4) ◽

pp. 645-660 ◽

Cited By ~ 1

Author(s):

Sevda AKAR ◽

Keyword(s):

Function Approach ◽

Reaction Function ◽

Long Run ◽

Non Linear ◽

Fiscal Reaction Function

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DINAMIKA UTANG PEMERINTAH DAN KESINAMBUNGAN FISKAL DI INDONESIA PERIODE 1980-2005: SUATU UJI PERBANDINGAN TIGA PENDEKATAN

Jurnal Ekonomi dan Pembangunan Indonesia ◽

10.21002/jepi.v8i1.125 ◽

2007 ◽

Vol 8 (1) ◽

pp. 1-30

Author(s):

Gaffari Ramadhan ◽

Robert SimanjunIak

Keyword(s):

Government Expenditure ◽

Government Debt ◽

Fiscal Sustainability ◽

Government Revenue ◽

Middle Term ◽

Dynamic Movement ◽

Primary Deficit ◽

The Government ◽

The Interest Rate ◽

The Right

Economic crisis which happened several years ago has caused many impacts to Indonesia. One of these impacts is a huge amount of government debt. Particularly, the government debt whether from domestic or foreign is one of the instruments to finance government expenditure which can not be fulfilled entirely by revenues from taxes. However, using the government debt to fund the government expenditure has consequences for the government to pay-back not only for the interest rate but also for the principal of debt which have maturity-date in the future. The purpose of this study is to analyze how far the development of the government debt dynamic from both domestic and foreign is correlated to fiscal sustainability. This study uses a case of lndonesia in period 1980-2005 which is divided into three periods: before crisis (1980-1997), crisis (1998-2000), and after crisis (2001-2005). In this study, we use Branson (1992) to analyze the government debt dynamic. In addition, we also use different approaches to have several comparisons in our analysis by Hamilton and Flavin (1986), Wilcox(1989), and Trehan and Walsh (1991). Besides that, we also conduct projection of the ratio of government revenue to GDP which is needed to support in decreasing of the ratio of government debt to GDP in the middle-term until 2010. In summary, this study shows that after the crisis, the dynamic movement of the government debt is decreasing continuously. Further more, the government debt and the primary deficit still stand on the sustainable path, or the right track. Equally important, in the middle-term, the ratio of government revenue to GDP is still needed to maintain in decreasing of the government debt from year to year. Generally, this study shows that fiscal condition in Indonesia after the crisis reflects sustainable and suitable to the assumption of Non-Ponzi Game.

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Formation of Long-Term Fiscal Sustainability of Kazakhstan Using the Rule Structural Budget Balance

The economy: strategy and practice ◽

10.51176/1997-9967-2021-3-117-127 ◽

2021 ◽

Vol 16 (3) ◽

pp. 117-127

Author(s):

S. N. Alpysbayeva ◽

S. Zh. Shuneyev ◽

N. N. Zhanakova ◽

K. Beisengazin

Keyword(s):

Fiscal Policy ◽

Fiscal Sustainability ◽

Fiscal Rules ◽

Output Gap ◽

Potential Gdp ◽

The Government ◽

Main Regulator ◽

Adjustment System ◽

Dynamic Series

The purpose of the study is to substantiate the potential of using the results of modeling potential GDP and estimating the output gap to comply with fiscal rules that are adequate for the corresponding economic cycle of the economy of Kazakhstan. The methods of economic, statistical, graphical, system, functional analysis, economic and mathematical modeling are applied. To achieve this goal, the analysis of Kazakhstan’s fiscal stability was carried out based on the assessment of Kazakhstan’s potential GDP and the calculation of output gaps, which were carried out based on the dynamic series method of the reported real GDP in 2005 prices for 1991-2019 using the Hodrick-Prescott filter (CP) using the EViews 10 econometric package. The current mechanism for using the output gap indicator in Kazakhstan’s fiscal policy does not have sufficient flexibility. For a timely response of the budget system to changes in the economic situation in the country or abroad, considering the output gap, it is important to introduce an automatic adjustment system that can eliminate contradictions and inconsistencies when making macroeconomic policy decisions by the main regulator and the government of the country. To do this, there is a need to revise the existing fiscal policy based on building a system of new budget rules on countercyclical principles. The proposed alternative fiscal model with the introduction of the rule on the structural balance of the budget is aimed at ensuring long-term fiscal stability, which does not allow for a pro-cyclical policy.

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Macroeconomic Determinants of External Debt Accumulation in Ethiopia: An ARDL Bound Testing Approach

African Journal of Economics and Sustainable Development ◽

10.52589/ajesd-5chik2tr ◽

2021 ◽

Vol 4 (2) ◽

pp. 1-28

Author(s):

Eyayu Tesfaye Mulugeta

Keyword(s):

External Debt ◽

Infrastructure Development ◽

Continuous Increase ◽

Debt Accumulation ◽

Long Run ◽

Short Run ◽

Testing Approach ◽

The Government ◽

Macroeconomic Determinants ◽

External Borrowing

This study attempts to explore the major macroeconomic determinants of external debt stock growth in Ethiopia prompted by a continuous increase in government external borrowing over the period 1981-2018. For this purpose, the study employed the ARDL bound testing approach and all the necessary time series diagnostic tests were conducted. The long run model estimation result revealed that per capita GDP growth has a positive and significant effect on the country’s external debt stock. The result also revealed that the budget deficit and political instability put a significant upward pressure on the external debt stock growth of the country both in the short run and long run. Consistent with some existing empirical evidence, the study revealed negative and significant influence of openness and infrastructure development on the external debt stock growth. Consequently, the government should embark on prudent borrowing to achieve structural transformation.

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