Public debt sustainability: an inquiry into 13 OECD countries in light of the COVID-19 pandemic and the current shift in theoretical paradigm

Keywords

Loading...
Thumbnail Image

Issue Date

2021-08-25

Language

en

Document type

Journal Title

Journal ISSN

Volume Title

Publisher

Title

ISSN

Volume

Issue

Startpage

Endpage

DOI

Abstract

Public debt levels are reaching dimensions that were unthinkable decades ago. Recent developments have given rise to a new paradigm regarding sustainable debt levels. This new outlook finds substantial support in this inquiry. The popular fiscal reaction test by Bohn (1998) is used to determine whether countries show a sufficient direct fiscal response to the growing gross debt levels. The panel data estimation indicates that there is significant proof that countries jointly adhere to a mean reversion process, suggesting sustainable fiscal policy. Time series analysis shows that Denmark, France, Germany, Japan, Norway Portugal, Spain, the UK, and the USA exhibit a sustainable policy. Greece and Italy have unsustainable policies, while Belgium and Finland show inconclusive results. The impact of the COVID-19 pandemic is also investigated by analysing forecasts of the IMF (2021) for 2021-2026. Surprisingly, most countries tend to have stronger mean reversion when the predictions of the IMF are included, giving this research an interesting twist.

Description

Citation

Supervisor

Faculty

Faculteit der Managementwetenschappen

Specialisation