Institutions of Fiscal Discipline and Their Effects on Sovereign Bond Spreads

A number of countries have adopted institutions of fiscal discipline (IFDs), such as balanced budget rules and fiscal responsibility laws. Empirical studies have looked into the effects of IFDs on economic fundamentals like GDP growth, fiscal balance, debt-GDP ratio and interest rates. A subset of these studies has focused on the effects of fiscal discipline on sovereign bond spreads (SBS). However, most of this latter research has been limited to high-income countries. This study builds on the existing body of literature to study the effects of IFDs on SBS for a larger set of developing and emerging countries. The paper employs the IMF’s fiscal rules data set and its fiscal responsibility Index (FRI) to study the effects of fiscal discipline on a set of 64 countries. The data on sovereign bond spreads was obtained from the J.P. Morgan’s Emerging Market Bond Index Global (EMBIG). The countries that are featured on EMBIG but are not included in the fiscal rules data set serve in our study as a comparison group. The paper uses the fixed effects and the System General Method of Moments (SGMM) estimation methods. The key finding of this study is that IFDs have a beneficial effect on the borrowing costs of developing countries.

Author

• Bhatti, Imtiaz

Language

• en

Keyword

• fiscal institutions
• Sovereign risk premia
• fiscal discipline
• fiscal rules
• sovereign bond spreads
• Institutions of fiscal discipline

Date created

• 2016

Type of Work

• Dissertation

License

• All rights reserved

Rights statement

• In Copyright

GW Unit

• Public Policy & Administration

Degree

• Ph.D.

Advisor

• Cordes, Joseph J

Committee Member(s)

• Debrun, Xavier
• Phaup, Marvin
• Augustine, Nancy
• Collins, Catherine

Persistent URL

•  https://scholarspace.library.gwu.edu/etd/qn59q4121