Title Fiscal limits, external debt, and fiscal policy in developing countries / prepared by Huixin Bi, Wenyi Shen, and Shu-Chun S. Yang

Published Washington D.C. : International Monetary Fund, 2014

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Description 1 online resource (38 pages) Series IMF working paper ; WP/14/49 IMF working paper ; WP/14/49. Contents Cover; Contents; I. Introduction; II. Model; A. Households; B. Firms; C. Government; D. Aggregation and Market Clearing; III. Estimation and Calibration; IV. Fiscal Limit Distribution; A. Simulating Fiscal Limit Distribution; B. Revenue Collection Capacity; C. Devaluation and Balance Sheet Effects; V. Fiscal Policy in a Highly Indebted Economy; A. The Economy in a High-Debt State; B. Fiscal Consolidation; C. Government Spending Effects in Different States of Debt; VI. Conclusion; Appendices; I. Equilibrium Conditions; II. Bayesian Estimation; III. Simulating Fiscal Limit Distributions IV. Solving Nonlinear ModelTables; 1. Parameter Calibration; 2. Cumulative Multipliers of Government Consumption; Figures; 1. Estimated CDF of the baseline fiscal limit distributions for Argentina: unconditional distributions; 2. Estimated CDF for different revenue mobilization capacity for Argentina; 3. Estimated CDF of with more fluctuations in the real exchange rate; 4. Estimated CDF of large devaluation of the real exchange rate; 5. Transition dynamics of fiscal consolidation; 6. Estimated CDF of a high-debt conditional distribution 7. Impulse responses to government spending shocks in a high-debt state8. Impulse responses to government spending shocks in a low-debt state; VII. References Summary This paper studies fiscal policy effects in developing countries with external debt and sovereign default risks. State-dependent distributions of fiscal limits are simulated based on macroeconomic uncertainty and fiscal policy specifications. The analysis shows that expected future revenue plays an important role in the low fiscal limits of developing countries, relative to those of developed countries. External debt carries additional risks since large devaluation of the real exchange rate can suddenly raise default probabilities. Consistent with majority views, fiscal consolidations are coun Bibliography Includes bibliographical references Notes Print version record Subject Business cycles -- Developing countries Country risk -- Developing countries Debts, External -- Developing countries Fiscal policy -- Developing countries Inflation -- Developing countries Business cycles Country risk Debts, External Fiscal policy Developing countries Form Electronic book Author Shen, Wenyi, author Yang, Shu-Chun Susan, 1971- author. ISBN 9781475515220 1475515227

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