Abstract

The COVID-19 pandemic induced governments all over the world to momentarily accumulate higher levels of public debt in order to invest in deficit spending and social protection programs to tackle the anticipated economic slump. The Nigerian government has borrowed heavily from domestic and foreign sources in order to resolve the growing budget deficits and return the economy to a sustainable growth trajectory. Previous studies frequently made the incorrect assumption that the relationship between public debt and growth is linear and symmetric, leading to empirical results that is frequently disputed and imprecise. This study’s main objective is to examine the asymmetric impact of public debt on economic growth in Nigeria from 1980 to 2020 using the Nonlinear Autoregressive Distributed Lag method. Empirical evidence indicated that external debt have a significant positive and symmetric impact on economic growth in the long and short run, while debt service payment supporting the debt overhang hypothesis activated a symmetric effect that stifle growth. Domestic debt retarded growth asymmetrically in the short term and linearly over the long term. Foreign reserve holding, on the other hand, had an asymmetric long-run influence and a symmetric short-run impact on growth motivation. To mitigate the negative effects of unsustainable public debt, the study advocated for fiscal reforms that effectively reduce deficit financing to keep the level of government debt low and be able to respond robustly to an economic shock, improve domestic revenue generation and infrastructure spending, and strengthen governance practices and institutions.

Abstract

The COVID-19 pandemic induced governments all over the world to momentarily accumulate higher levels of public debt in order to invest in deficit spending and social protection programs to tackle the anticipated economic slump. The Nigerian government has borrowed heavily from domestic and foreign sources in order to resolve the growing budget deficits and return the economy to a sustainable growth trajectory. Previous studies frequently made the incorrect assumption that the relationship between public debt and growth is linear and symmetric, leading to empirical results that is frequently disputed and imprecise. This study’s main objective is to examine the asymmetric impact of public debt on economic growth in Nigeria from 1980 to 2020 using the Nonlinear Autoregressive Distributed Lag method. Empirical evidence indicated that external debt have a significant positive and symmetric impact on economic growth in the long and short run, while debt service payment supporting the debt overhang hypothesis activated a symmetric effect that stifle growth. Domestic debt retarded growth asymmetrically in the short term and linearly over the long term. Foreign reserve holding, on the other hand, had an asymmetric long-run influence and a symmetric short-run impact on growth motivation. To mitigate the negative effects of unsustainable public debt, the study advocated for fiscal reforms that effectively reduce deficit financing to keep the level of government debt low and be able to respond robustly to an economic shock, improve domestic revenue generation and infrastructure spending, and strengthen governance practices and institutions.

Abstract

In Kenya, interest payments on external debt have been increasing from 2010 to 2015, while GDP growth experienced a slight decline over the same period. Policymakers are concerned that the rapid increase in external debt in developing countries such as Kenya has the potential to erode the country's sovereign rating, particularly if it is not supported by proportionate growth in the size of the economy. The purpose of this study was to investigate the effect of interest payments on external debt on economic growth in Kenya. The study utilized secondary data for 25 years, from 1991 to 2015, for GDP growth and interest payments on external debt. The results from the analysis of variance statistics indicate that the model was statistically significant. This implies that interest payments on external debt are good predictors of GDP growth. Regression coefficient results show that GDP growth and the logarithm of interest payments on external debt are negatively and significantly related. The study recommends that future government plans should ensure that external borrowings are taken at rates not higher than the interest rate payments.

Abstract

Abstract Following years of fast‐rising debt levels, we show that the Covid‐19 crisis worsened an already deteriorating fiscal position in South Africa. To restore fiscal sustainability in the aftermath of the crisis some commentators argue that higher government expenditure will grow GDP sufficiently to stabilise the debt/GDP ratio. We reject this, showing that although a real increase in expenditure stimulates economic growth (a short‐run, once‐off effect), the public expenditure/GDP ratio exceeds the level at which an increase in the ratio positively impacts growth. We then explore the past efforts of government to maintain or restore fiscal sustainability by estimating a fiscal reaction function using a Markov‐switching model. Following the impact of the Covid‐19 crisis on the budget, we subsequently establish the deficit, expenditure and revenue adjustments that the government will have to make to restore fiscal sustainability. Finally, we consider the merits of introducing a debt ceiling.

Abstract

We study the relationship between foreign debt and GDP growth using a panel dataset of 50 countries from 1997 to 2015. We find that economic growth correlates positively with foreign debt and that the relationship is causal in nature by using the sovereign credit default swap spread as an instrumental variable. Furthermore, we find that foreign debt increases investment and then GDP growth in subsequent years. Our findings suggest that lower sovereign default risks lead to higher foreign debt contributing to GDP growth more in OECD than non-OECD countries.

Abstract

Understanding the determinants of fiscal deficits is justified by the fact that persistent deficits rapidly lead to the accumulation of public debt. Therefore, the aim of this paper is to analyze the factors that explained the fiscal deficits of Spanish municipalities in the period 2011–2020. The deficit at the municipal level for Spain is explained by considering several determinants covering socioeconomic and political dimensions, such as GDP per capita, unemployment rate, population, political participation, political sign of the ruling party or political force, among others. The method of moments quantile regression (MMQ) and mean group (MG) estimator are applied for the overall sample and for each group of municipalities. In addition, the causality between the deficit and the explanatory variables is analyzed using the Juodis et al. (2021) test. It is found that economic growth only has a long-term beneficial effect on the deficit as it reduces the deficit at all quantile levels except at the 10% quantile. Unemployment increases the deficit in both the short and long run. Political participation and right-wing political parties contribute to the growth of the deficit in the higher quantiles. To reduce the budget deficit, the analysis shows that unemployment should be reduced and economic growth should be boosted. The results are robust to those based on mean group estimators. With this paper, we contribute to the scarce literature on deficit determinants by analyzing the determinants for Spanish municipalities. Furthermore, our findings have important implications for politicians, citizens and stakeholders.

Abstract

The twin deficit hypothesis suggests that budget deficits are crucial factors leading to current account deficits, and substantial empirical evidence documents a significant positive statistical correlation between budget and current account deficits. However, such evidence generally suffers from endogeneity problems due to reverse causality, thereby making it difficult to provide solid evidence to support policy implementation. We use extensive cross-national panel data from developed and developing countries and military expenditure as an instrumental variable to reexamine the impact of budget deficits on the current account and test the validity of the twin deficit hypothesis. Our results demonstrate that budget deficits lead to current account deficits in both developed and developing countries, supporting the twin deficit hypothesis. After considering various factors that may affect the exogeneity of military expenditures, approximating the instrumental variable as exogenous, and performing multiple robustness tests, the hypothesis still holds. This study provides solid evidence supporting the use of fiscal policies to deal with current account imbalances.

Abstract

Abstract Rising federal debt threatens to reduce the growth of the economy, people’s living standards, wages, and the standard of living. A policy solution needs to respect many constraints, most importantly, that it is seen as fair—both within generations and across generations. This article addresses concepts of fairness and their application to resolutions of the federal debt problem. The major conclusions are that policymakers should push only limited amounts of debt to future generations and that they should use the need to reform fiscal policy as a way to expand government investments in a wide range of programs—ranging from early childhood to higher education, from infrastructure to basic research. The resolution of these issues will also require progressive tax reforms.

Abstract

Abstract Rising federal debt threatens to reduce the growth of the economy, people’s living standards, wages, and the standard of living. A policy solution needs to respect many constraints, most importantly, that it is seen as fair—both within generations and across generations. This article addresses concepts of fairness and their application to resolutions of the federal debt problem. The major conclusions are that policymakers should push only limited amounts of debt to future generations and that they should use the need to reform fiscal policy as a way to expand government investments in a wide range of programs—ranging from early childhood to higher education, from infrastructure to basic research. The resolution of these issues will also require progressive tax reforms.

Abstract

BACKGROUND The rate of improvement in mortality slowed across many high-income countries after 2010. Following the 2007-08 financial crisis, macroeconomic policy was dominated by austerity as countries attempted to address perceived problems of growing state debt and government budget deficits. This study estimates the impact of austerity on mortality trends for 37 high-income countries between 2000 and 2019. METHODS We fitted a suite of fixed-effects panel regression models to mortality data (period life expectancy, age-standardised mortality rates (ASMRs), age-stratified mortality rates and lifespan variation). Austerity was measured using the Alesina-Ardagna Fiscal Index (AAFI), Cyclically-Adjusted Primary Balance (CAPB), real indexed Government Expenditure, and Public Social Spending as a % of GDP. Sensitivity analyses varied the lag times, and confined the panel to economic downturns and to non-oil-dominated economies. RESULTS Slower improvements, or deteriorations, in life expectancy and mortality trends were seen in the majority of countries, with the worst trends in England & Wales, Estonia, Iceland, Scotland, Slovenia, and the USA, with generally worse trends for females than males. Austerity was implemented across all countries for at least some time when measured by AAFI and CAPB, and for many countries across all four measures (and particularly after 2010). Austerity adversely impacted life expectancy, ASMR, age-specific mortality and lifespan variation trends when measured with Government Expenditure, Public Social Spending and CAPB, but not with AAFI. However, when the dataset was restricted to periods of economic downturn and in economies not dominated hydrocarbon production, all measures of austerity were found to reduce the rate of mortality improvement. INTERPRETATION Stalled mortality trends and austerity are widespread phenomena across high-income countries. Austerity is likely to be a cause of stalled mortality trends. Governments should consider alternative economic policy approaches if these harmful population health impacts are to be avoided.