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Global Debt Database: Methodology and Sources
This paper describes the compilation of the Global Debt Database (GDD), a cutting-edge dataset covering private and public debt for virtually the entire world (190 countries) dating back to the 1950s. The GDD is the result of a multiyear investigative process that started with the October 2016 Fiscal Monitor, which pioneered the expansion of private debt series to a global sample. It differs from existing datasets in three major ways. First, it takes a fundamentally new approach to compiling historical data. Where most debt datasets either provide long series with a narrow and changing definition of debt or comprehensive debt concepts over a short period, the GDD adopts a multidimensional approach by offering multiple debt series with different coverages, thus ensuring consistency across time. Second, it more than doubles the cross-sectional dimension of existing private debt datasets. Finally, the integrity of the data has been checked through bilateral consultations with officials and IMF country desks of all countries in the sample, setting a higher data quality standard.
Can Property Taxes Reduce House Price Volatility? Evidence from U.S. Regions
We use a novel dataset on effective property tax rates in U.S. states and metropolitan statistical areas (MSAs) over the 2005–2014 period to analyze the relationship between property tax rates and house price volatility. We find that property tax rates have a negative impact on house price volatility. The impact is causal, with increases in property tax rates leading to a reduction in house price volatility. The results are robust to different measures of house price volatility, estimation methodologies, and additional controls for housing demand and supply. The outcomes of the analysis have important policy implications and suggest that property taxation could be used as an important tool to dampen house price volatility.
Leading Indicators of Fiscal Distress
Early warning systems (EWS) are widely used for assessing countries’ vulnerability to fiscal distress. Most EWS employ a specific set of only fiscal leading indicators predetermined by the researchers, which casts doubt on their robustness. We revisit this issue by using the Extreme Bound Analysis, which allows identifying robust leading indicators of fiscal distress from a large set. Consistent with the theoretical predictions of latest generation crisis models, we find that both fiscal (e.g., fiscal balance, foreign exchange debt) and non-fiscal leading indicators (e.g., output, FX reserves, current account balance, and openness) are robust. In addition, we find that a fiscal vulnerability indicator based on fiscal and non-fiscal leading indicators offers a 29% gain in predictive power compared to a traditional one based on fiscal leading indicators only. It also has good predictive power out of sample, with 78 percent of crises predicted correctly and only 34 percent false alarms issued for the period 2008–15. This suggests that both fiscal and non-fiscal leading indicators should be taken into account when assessing country’s vulnerability to fiscal distress.
Proposal for a Food Shock Window Under the Rapid Financing Instrument and Rapid Credit Facility
Russia’s war in Ukraine has exacerbated global economic pressures, including through a food shock. The war and food-related spillovers—higher import prices for food and fertilizer and disruptions in supply lines for food importers, and a loss of revenue for some food exporters—add to urgent balance-of-payments (BOP) needs of many Fund members. They have also exacerbated acute food insecurity, now affecting 345 million people. While the best response to address BOP pressures would generally involve an Upper Credit Tranche-quality program, such a program may not be feasible in some cases or necessary in others. This paper proposes a time-bound food shock window under the Rapid Financing ...
Options and Strategies for Fiscal Consolidation in India
The paper uses a multi-region DSGE model to quantify the macroeconomic implications of three adjustment scenarios for India: growth-friendly, social-friendly, and a benchmark case centered on bringing down unproductive spending and strengthening the consumption tax. Simulations indicate that fiscal consolidation yields considerable long-term benefits but also entails output costs in the near term. The scenarios in which deficit reduction is accompanied by greater investment and social spending lead to better results than the benchmark case. The consolidation package alone is not enough to maximize net gains. Other factors, such as the pace and the credibility of consolidation, the concomitant implementation of structural reforms, and global economic conditions, play a critical role in the success of fiscal consolidation.
Designing a European Fiscal Union
Does the European Union need closer fiscal integration, and in particular a stronger fiscal centre, to become more resilient to economic shocks? This book looks at the experience of 13 federal states to help inform the heated debate on this issue. It analyses in detail their practices in devolving responsibilities from the subnational to the central level, compares them to those of the European Union, and draws lessons for a possible future fiscal union in Europe. More specifically, this book tries to answer three sets of questions: What is the role of centralized fiscal policies in federations, and hence the size, features and functions of the central budget? What institutional arrangements...
The Fiscal State-Dependent Effects of Capital Income Tax Cuts
Using the post-WWII data of U.S. federal corporate income tax changes, within a Smooth Transition VAR, this paper finds that the output effect of capital income tax cuts is government debt-dependent: it is less expansionary when debt is high than when it is low. To explore the mechanisms that can drive this fiscal state-dependent tax effect, the paper uses a DSGE model with regime-switching fiscal policy and finds that a capital income tax cut is stimulative to the extent that it is unlikely to result in a future fiscal adjustment. As government debt increases to a sufficiently high level, the probability of future fiscal adjustments starts rising, and the expansionary effects of a capital income tax cut can diminish substantially, whether the expected adjustments are through a policy reversal or a consumption tax increase. Also, a capital income tax cut need not always have large revenue feedback effects as suggested in the literature.
Ireland
The Irish financial sector has continued to perform well since its participation in the Financial Sector Assessment Program (FSAP) in 2000. Although the outlook remains very strong for 2006–07, there are some macroeconomic risks that could have implications for the financial system asset quality. The financial system seems well placed to absorb the impact of a downturn in either house prices or growth more generally. Further, good progress has been achieved since the 2000 FSAP in strengthening the regulatory and supervisory framework.
Fiscal Monitor, April 2012
Overall, fiscal risks remain elevated, according to this issue, although there are signs that in some key respects they are less acute than six months ago. Past efforts with fiscal consolidation are beginning to bear fruit, particularly when buttressed by credible institutional commitments. Nevertheless, debt ratios in many advanced economies are at historical levels and rising, borrowing requirements remain very large, financial markets continue to be in a state of alert, and downside risks to the global economy predominate. In this uncertain environment, the challenge for fiscal policy is to find the right balance between exploiting short-term space to support the fragile recovery and rebu...
On the Benefits of Repaying
This paper studies whether countries benefit from servicing their debts during times of widespread sovereign defaults. Colombia is typically regarded as the only large Latin American country that did not default in the 1980s. Using archival research and formal econometric estimates of Colombia's probability of default, we show that in the early 1980s Colombia's fundamentals were not significantly different from those of the Latin American countries that defaulted on their debts. We also document that the different path chosen by Colombia was due to the authorities' belief that maintaining a good reputation in the international capital market would have substantial long-term payoffs. We show ...
