Fiscal Crises

Author/Editor:

Kerstin Gerling ; Paulo A Medas ; Tigran Poghosyan ; Juan Farah-Yacoub ; Yizhi Xu

Publication Date:

April 3, 2017

Electronic Access:

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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.

Summary:

A key objective of fiscal policy is to maintain the sustainability of public finances and avoid crises. Remarkably, there is very limited analysis on fiscal crises. This paper presents a new database of fiscal crises covering different country groups, including low-income developing countries (LIDCs) that have been mostly ignored in the past. Countries faced on average two crises since 1970, with the highest frequency in LIDCs and lowest in advanced economies. The data sheds some light on policies and economic dynamics around crises. LIDCs, which are usually seen as more vulnerable to shocks, appear to suffer the least in crisis periods. Surprisingly, advanced economies face greater turbulence (growth declines sharply in the first two years of the crisis), with half of them experiencing economic contractions. Fiscal policy is usually procyclical as countries curtail expenditure growth when economic activity weakens. We also find that the decline in economic growth is magnified if accompanied by a financial crisis.

Series:

Working Paper No. 17/86

Subject:

English

Publication Date:

April 3, 2017

ISBN/ISSN:

9781475592153/1018-5941

Stock No:

WPIEA2017086

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

43

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