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This paper examines the sustainability of fiscal policy under uncertainty in three emerging market countries, Brazil, Mexico, and Turkey. For each country, we estimate a vector autoregression (VAR) that includes fiscal and macroeconomic variables. Retrospectively, a historical decomposition shows by how much debt accumulation reflects unsustainable policy, adverse shocks, or both. Prospectively, Monte Carlo techniques reveal the primary surplus that is required to keep the debt/GDP ratio from rising in all but the worst 50 percent, 25 percent, and 10 percent of circumstances. Such a value-at-risk approach presents a clearer menu of policy options than currently used frameworks.

Fiscal vulnerability, like a contagion, poses a threat to financial sector stability, which can lead towards sovereign default. This study aimed to assess fiscal vulnerability to crisis by investigating the Australian economy's gross public debt, net public debt, and net financial liabilities. We used a threshold regression model and compared results with the baseline deficit-debt framework of analysis. The results of the base model suggested that the economy is fiscally sustainable, and that the primary surplus remains unaffected by increasing levels of public debt. In contrast, the threshold regression model indicated that the increasing level of debt has eroded primary surplus below the threshold level of 30.89% of public debt to GDP. These results need further investigation. Therefore, we modified our basic threshold model to capture budget deficit and surplus as a threshold in response to changes in public debt. The results from the sequential threshold regression model using the debt to GDP ratio and primary budget surplus identifying the periods of 1991, 1992, 2008, 2009, 2011 and 2019 as times of likely vulnerability to fiscal crisis. The overall results confirmed that the primary surplus remained sustainable over the estimated threshold level of public debt in all other sample periods and these findings persisted across alternative measures of public debt.

Purpose – The purpose of this paper is to appraise the stability of Ghana’s fiscal policy by assessing government’s reaction in the past to rising public debt over the last three decades. Design/methodology/approach – Using quarterly data spanning 1990Q1-2013Q2, the study evaluated the mean reverting properties of Ghana’s public debt and also estimate the fiscal policy reaction function. The complementary estimation techniques include Pesaran et al. (2001) bound testing cointegration test, differencing method and also Granger two-step cointegration methods. Findings – Using quarterly data from 1990Q1 to 2013Q2, the study found the fiscal policy to be unstable in the 1990s, necessitating the adoption of Heavily Indebted Poor Countries’ initiative in 2001. The fiscal situation however relatively stabilizes afterwards following the external debt relief in 2001. Nevertheless, the study reveals that the recent fiscal policy (since 2006) seems to be confronted with tremendous fiscal pressures, exacerbated by fiscal excesses during election cycles as well as excessive domestic and external borrowings. In addition, the economic growth-debt link was found to be weak, though debt appears to adversely affect economic growth. Research limitations/implications – The study does not thoroughly explore the possibility of non-linear relationship between public debt and primary balance. Also, the result could be different using different data frequencies. Practical implications – The state of government finance has implications on the monetary policy and economic growth prospects of an economy. As an inflation targeting central bank since 2002, a successful monetary policy implementation that reins in inflation requires fiscal policy that curtails fiscal volatilities originating from imprudent behaviour of government. Therefore, the looming fiscal pressures in recent times would impair the effective implementation of the inflation targeting framework by the central bank, and also retard economic growth as the bulk of these expenditures are usually recurrent in the case of Ghana. Originality/value – This is the first paper to employ complementary econometric techniques to empirically evaluate fiscal sustainability in Ghana.

Inflation targeting, primary surpluses and a floating exchange rate under supply and exchange-rate shocks can combine to create deleterious effects on the economic dynamic. This paper reports on computer simulation experiments using a dynamic and stochastic model that can incorporate different restrictions. In general, the data show that under supply and exchange-rate shocks, a better method for minimising social loss includes flexible inflation targeting, counter-cyclical primary surpluses and capital control without eliminating the floating exchange rate.

The paper proposes an operational definition of safe public debt levels and discusses various concrete approaches to calculate them. A public debt level is considered safe if it is associated with a low probability of reaching levels likely to generate significant economic costs within a given time frame. Like debt sustainability assessments, implementing such a broad definition requires medium-term projections of the debt-to-GDP ratio. This implies that different sets of plausible assumptions can yield fairly different \"safe2 debt levels for the same country. However, the proposed framework has the merit to force policymakers and analysts to be explicit about the assumptions underlying their calculations.

This paper critically reviews recent work regarding the sustainability of public debt. It argues that Debt Sustainability Analyses (DSAs) should be more than mere mechanical simulation exercises. Instead, a DSA should be linked to some objective regarding the distribution of fiscal burdens and distortions over time (in the tradition of Barro's 1979 tax smoothing objective). The paper discusses objective functions that yield simple and transparent fiscal policy rules.

Fiscal sustainability analysis is the use of a simple set of tools to analyze a government's budget and its debt position, and leads to conclusions - given the government's debt level - about the appropriateness of fiscal policy.

Este artigo apresenta uma análise histórica e empírica das transformações ocorridas na gestão das empresas estatais brasileiras durante os últimos 20 anos. O principal insight do estudo é mostrar como as empresas federais, consideradas vilãs da crise fiscal dos anos 1980 - por terem sido usadas pela ditadura militar para sua política de endividamento externo -, assumiram um papel decisivo para o equilíbrio fiscal e macroeconômico no período recente. Estimamos que a contribuição efetiva das estatais para o superávit primário do setor público esteja acima dos 50%, contabilizando as contribuições indiretas, como dividendos e royalties. Além disso, calculamos que a fatia das estatais nos pagamentos de tributos a União, estados e municípios cresceu de 7,7% em 1999 para 14% em 2005-06, respondendo por cerca de 40% do aumento da carga tributária. Também encontramos, aqui, evidências de que os investimentos das estatais no Brasil contribuíram para compensar o aperto fiscal e monetário entre 2002 e 2004.This article expose a historical and empirical analysis of the transformations in the administration of the Brazilian state owned enterprises during the last 20 years. The main insight of the study is to show how the federal companies, considered villains of the fiscal crisis in the 80's - because its manipulation by military dictatorship to his foreign indebtedness policy -, assumed a decisive role in fiscal and macroeconomic equilibrium in the recent period. We estimate that the effective contribution of federal companies to primary surplus has been above 50%, accounting the indirect contributions, like dividends and royalties. Moreover, we calculate that the share of this enterprises in tax revenues of federal, state and municipal governments have grown from 7,7% in 1999 to 14% in 2005-06, representing around 40% of the increase in tax rate. We also found evidences, here, that the investments executed by those companies has contributed to compensate the fiscal and monetary contraction between 2002 e 2004.

The aim of this paper is to analyze the dynamic interaction between monetary and fiscal policies in Indonesia for the period of 1999 - 2010. First, we propose the reaction function between monetary and fiscal policies. Second, we identify the main determinants of both interaction decisions, i.e. interest rate and primary balance surplus. The results of quarterly data estimation show that in the short term monetary policy reacts as expected to the fiscal policy - in the sense that governments have the ability to run a primary surplus. This action makes fiscal sustainability easier to achieve in the long run. On the other hand, fiscal policy marginally reacts to the monetary policy (interest rate) so that fiscal sustainability will be more difficult to attain given the opposite response of governments to public debt shocks. Furthermore, the interaction matrix indicates that monetary policy is more dominant in Indonesia. In these circumstances, the active fiscal policy should be made in order to reach economic growth sustainability in the long run.

A theoretical model is developed for the ratio primary-surplus/GDP that a Country has to attain over a given number of years, to lower its public debt from the present value to one a-priori fixed. Such a ratio depends on the average interest rate paid on the outstanding stock of debt as well as inflation and real growth rates. The ratio primary-surplus/GDP is then determined for Germany, Greece and Italy, supposing that 20 years are necessary for lowering the debt to 60% of GDP, as indicated in the Budget Pact approved by 25 EU member States. Results are reported in graphs and show how the German debt can be easily diminished, whilst debts in Greece and Italy can be reduced with a greater difficulty.[PUBLICATION ABSTRACT]