{
  "title": "Fiscal Policy and Financial Markets",
  "publication": "IMF Working Papers, January 1, 2006",
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  "summary": "This paper introduces fiscal policy in a model of sovereign risk spreads (\"spreads\"). Using panel data from emerging market countries, we find that reductions in public expenditure are a more powerful tool for reducing spreads than increases in revenues.",
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    {
      "heading": "Summary and main findings",
      "content": "- Introduces fiscal policy in a model of sovereign risk spreads (\"spreads\").\n- Using panel data from emerging market countries, reductions in public expenditure are a more powerful tool for reducing spreads than increases in revenues.\n- Cuts in current spending lower spreads by more than cuts in investment spending.\n- Cuts in current spending lower spreads by more than increases in revenue.\n- Debt-financed current spending increases sovereign risk by more than tax-financed current spending, suggesting that international investors have some preference for tax-financed current spending.\n- Liquidity and solvency indicators, as well as macroeconomic fundamentals, are also important determinants of spreads, in line with the empirical literature on the determinants of spreads."
    },
    {
      "heading": "Model, data, and methodology",
      "content": "- Introduces fiscal policy into a model of sovereign risk spreads.\n- Empirical analysis uses panel data from emerging market countries.\n- Methodological keywords include Arellano-bond estimate and stochastic model."
    },
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      "heading": "Policy implications and interpretation",
      "content": "- Fiscal consolidation via reductions in public expenditure—particularly cuts in current spending—can be more effective at reducing sovereign spreads than revenue increases.\n- Financing composition matters: debt-financed current spending raises sovereign risk more than tax-financed current spending, implying investor preferences over financing methods.\n- Policymakers should consider liquidity and solvency indicators and broader macroeconomic fundamentals when assessing the impact of fiscal actions on sovereign spreads.\n\n---\n\n Content in this bundle\n\n- wp0616\n  - wp0616 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp0616 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/fiscal-policy-and-financial-markets-18785"
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    "Authors: Bernardin Akitoby, Thomas Stratmann",
    "Published: January 1, 2006",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451862768.001",
    "Introduces fiscal policy in a model of sovereign risk spreads (\"spreads\").",
    "Using panel data from emerging market countries, reductions in public expenditure are a more powerful tool for reducing spreads than increases in revenues.",
    "Cuts in current spending lower spreads by more than cuts in investment spending.",
    "Cuts in current spending lower spreads by more than increases in revenue.",
    "Debt-financed current spending increases sovereign risk by more than tax-financed current spending, suggesting that international investors have some preference for tax-financed current spending.",
    "Liquidity and solvency indicators, as well as macroeconomic fundamentals, are also important determinants of spreads, in line with the empirical literature on the determinants of spreads.",
    "Introduces fiscal policy into a model of sovereign risk spreads.",
    "Empirical analysis uses panel data from emerging market countries.",
    "Methodological keywords include Arellano-bond estimate and stochastic model.",
    "Fiscal consolidation via reductions in public expenditure—particularly cuts in current spending—can be more effective at reducing sovereign spreads than revenue increases.",
    "Financing composition matters: debt-financed current spending raises sovereign risk more than tax-financed current spending, implying investor preferences over financing methods.",
    "Policymakers should consider liquidity and solvency indicators and broader macroeconomic fundamentals when assessing the impact of fiscal actions on sovereign spreads.",
    "**_wp0616**"
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