Financial Crises and Public Debt: Empirical Evidence from OECD Countries

• Autores: Davide Furceri
• Localización: XVII Encuentro de Economía Pública: políticas públicas ante la crisis, 2010, pág. 21
• Idioma: inglés
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• Resumen

  • The aim of this paper is to assess the impact of financial crises on public debt. Using a panel of data from 1970 to 2008 for 28 OECD countries and financial crisis dates reported in Laeven and Valencia (2008), the long-term effect of a financial crisis on the debt-GDP ratio is estimated. The results of the paper suggest that fiscal responses to financial crises have generally produced a substantial long-term increase in government debt. In particular, while the occurrence of a financial crisis has led on average to a permanent increase of about 6 percentage points in the government debt-GDP ratio, the occurrence of a severe crisis has induced an increase of about 32 percentage points in the debt-GDP ratio. This suggests that the effect is a function of the severity of the crisis, which in turns implies that the effect could be much larger in the current circumstances. Moreover, the results further suggest that the debt-GDP ratio tends to increase more in countries with relative high initial debt service ratios and larger expenditure increases in the year following the occurrence of the crisis, as well as in relatively smaller countries.The results are economically and statistically significant, and robust.