Primary Balance: Sustainability Analysis under Uncertainty
This paper analyzes the sustainability of Costa Rican sovereign debt within the intertemporal budget constraint framework, which is complemented with the estimation of the fiscal reaction function and a risk assessment under the fan chart methodology using annual data from 1974 until 2018. Results show that fiscal behavior has been unsustainable for specific episodes in the long run, and in the short run there have been few instances of debt sustainability since the economic crisis of the early 1980s. Given that a major fiscal reform was approved at the end of 2018, an evaluation of its impact on the path of adjustment of primary balance, considering uncertainty, is included.
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| Language: | English |
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Inter-American Development Bank
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| Subjects: | Fiscal Policy, Sustainability, Public Debt, Fiscal Sustainability, Exchange Rate, Interest Rate, Gross Domestic Product, E62 - Fiscal Policy, C22 - Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes, H63 - Debt • Debt Management • Sovereign Debt, C15 - Statistical Simulation Methods: General, debt sustainability;Primary balance;Fiscal reaction function;Riskassessment;Fan chart, |
| Online Access: | http://dx.doi.org/10.18235/0002800 https://publications.iadb.org/en/primary-balance-sustainability-analysis-under-uncertainty |
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| Summary: | This paper analyzes the sustainability of Costa Rican sovereign debt within the intertemporal budget constraint framework, which is complemented with the estimation of the fiscal reaction function and a risk assessment under the fan chart methodology using annual data from 1974 until 2018. Results show that fiscal behavior has been unsustainable for specific episodes in the long run, and in the short run there have been few instances of debt sustainability since the economic crisis of the early 1980s. Given that a major fiscal reform was approved at the end of 2018, an evaluation of its impact on the path of adjustment of primary balance, considering uncertainty, is included. |
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