Fiscal Policy and Default Risk in Emerging Markets

Gabriel Cuadra, Juan Sanchez and Horacio Sapriza

Review of Economic Dynamics, 2010, vol. 13, issue 2, 452-469

Abstract: Emerging market economies typically exhibit a procyclical fiscal policy: public expenditures rise (fall) in economic expansions (recessions), whereas tax rates rise (fall) in bad (good) times. Additionally, the business cycle of these economies is characterized by countercyclical default risk. In this paper we develop a quantitative dynamic stochastic small open economy model with incomplete markets, endogenous fiscal policy and sovereign default where public expenditures and tax rates are optimally procyclical. The model also accounts for the dynamics of other key macroeconomic variables in emerging economies. (Copyright: Elsevier)

Keywords: Procyclical fiscal policy; Sovereign default risk; Endogenous borrowing constraints (search for similar items in EconPapers)
JEL-codes: E62 F34 F41 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (159)

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2009.07.002
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Fiscal Policy and Default Risk in Emerging Markets" (2009)
Working Paper: Fiscal policy and default risk in emerging markets (2009)
Working Paper: Fiscal Policy and Default Risk in Emerging Markets (2009)
Working Paper: Fiscal Policy and Default Risk in Emerging Markets (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:06-71

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2009.07.002

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().