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Fiscal Crises: The Role of the Public Debt Investor Base and Domestic Financial Markets as Aggravating and Mitigating Factors
Author:
Ms. Rina Bhattacharya
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Kubi Johnson
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Ms. Mwanza Nkusu
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Mengxue Wang 0000000404811396 https://isni.org/isni/0000000404811396 International Monetary Fund

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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 240
Language:
English
Publication Date:
02 Dec 2022
DOI:
https://doi.org/10.5089/9798400227776.001
ISBN:
9798400227776
ISSN:
1018-5941
Pages:
42
Keywords:
investor base; crisis data; debt carrying capacity; IV robustness; debt level; Financial sector development; Capital markets; Nonbank financial institutions; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The paper evaluates the key drivers of fiscal crises in a sample of countries from all three income groups—advanced, emerging, and low-income countries, using fiscal crisis data recently developed by the IMF’s Fiscal Affairs Department. The empirical study focuses on three questions: (1) How does the composition of debtholders (domestic vs. foreign, resident vs. non-resident, or official vs. non-official) affect the probability of a fiscal crisis, after controlling for the level of public debt and other relevant variables?; (2) How does the development and size of the domestic financial sector affect the probability of a fiscal crisis?; and (3) How do changes in the debt level affect the probability of a fiscal crisis, for given compositions of the sovereign debt investor base and different levels of development and size of domestic financial markets? Our findings confirm the benefits of financial development, the danger of heavy reliance on a non-resident investor base, and also that emerging market economies have a lower debt carrying capacity compared to the full sample.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 240