Too much debt and budget deficit on fiscal sustainability: do institutions matter?
The current study estimates threshold levels of the public debt-to-gross domestic product (GDP) ratio and the budget deficit for 106 developing and 36 developed countries from 1996 to 2018. A PCA-based fiscal sustainability indicator is also constructed and a dynamic panel threshold regression is em...
| Main Authors: | , , , |
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| Format: | Article |
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Persatuan Ekonomi Malaysia
2022
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| _version_ | 1825938713940590592 |
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| author | Malik, Cahyadin Sarmidi, Tamat Khalid, Norlin Law, Siong Hook |
| author_facet | Malik, Cahyadin Sarmidi, Tamat Khalid, Norlin Law, Siong Hook |
| author_sort | Malik, Cahyadin |
| collection | UPM |
| description | The current study estimates threshold levels of the public debt-to-gross domestic product (GDP) ratio and the budget deficit for 106 developing and 36 developed countries from 1996 to 2018. A PCA-based fiscal sustainability indicator is also constructed and a dynamic panel threshold regression is employed. The main findings reveal a threshold effect in the public debt-to-GDP ratio and budget deficit fiscal sustainability nexus. The public debt-to-GDP ratio and budget deficit are beneficial in maintaining fiscal sustainability at lower or upper threshold levels in different institutional indicators. The highest threshold level of the public debt-to-GDP ratio was 59.56% for developed countries and 64.87% for developing countries. The highest threshold level of budget deficit-to-GDP ratio was 0.41% for developed countries and 3.34% for developing countries. Three institutional indicators contribute significantly to the threshold estimation: regulatory quality, the rule of law and control of corruption. Policymakers are advised to maintain certain threshold points to ensure a fiscally sustainable level. The quality of law enforcement and control of corruption should also be improved. |
| first_indexed | 2024-04-09T03:50:35Z |
| format | Article |
| id | upm.eprints-102479 |
| institution | Universiti Putra Malaysia |
| last_indexed | 2024-04-09T03:50:35Z |
| publishDate | 2022 |
| publisher | Persatuan Ekonomi Malaysia |
| record_format | dspace |
| spelling | upm.eprints-1024792024-03-12T08:59:41Z http://psasir.upm.edu.my/id/eprint/102479/ Too much debt and budget deficit on fiscal sustainability: do institutions matter? Malik, Cahyadin Sarmidi, Tamat Khalid, Norlin Law, Siong Hook The current study estimates threshold levels of the public debt-to-gross domestic product (GDP) ratio and the budget deficit for 106 developing and 36 developed countries from 1996 to 2018. A PCA-based fiscal sustainability indicator is also constructed and a dynamic panel threshold regression is employed. The main findings reveal a threshold effect in the public debt-to-GDP ratio and budget deficit fiscal sustainability nexus. The public debt-to-GDP ratio and budget deficit are beneficial in maintaining fiscal sustainability at lower or upper threshold levels in different institutional indicators. The highest threshold level of the public debt-to-GDP ratio was 59.56% for developed countries and 64.87% for developing countries. The highest threshold level of budget deficit-to-GDP ratio was 0.41% for developed countries and 3.34% for developing countries. Three institutional indicators contribute significantly to the threshold estimation: regulatory quality, the rule of law and control of corruption. Policymakers are advised to maintain certain threshold points to ensure a fiscally sustainable level. The quality of law enforcement and control of corruption should also be improved. Persatuan Ekonomi Malaysia 2022-12 Article PeerReviewed Malik, Cahyadin and Sarmidi, Tamat and Khalid, Norlin and Law, Siong Hook (2022) Too much debt and budget deficit on fiscal sustainability: do institutions matter? Malaysian Journal of Economic Studies, 59 (2). 261 - 284. ISSN 1511-4554 https://mjes.um.edu.my/index.php/MJES/article/view/40891 10.22452/MJES.vol59no2.5 |
| spellingShingle | Malik, Cahyadin Sarmidi, Tamat Khalid, Norlin Law, Siong Hook Too much debt and budget deficit on fiscal sustainability: do institutions matter? |
| title | Too much debt and budget deficit on fiscal sustainability: do institutions matter? |
| title_full | Too much debt and budget deficit on fiscal sustainability: do institutions matter? |
| title_fullStr | Too much debt and budget deficit on fiscal sustainability: do institutions matter? |
| title_full_unstemmed | Too much debt and budget deficit on fiscal sustainability: do institutions matter? |
| title_short | Too much debt and budget deficit on fiscal sustainability: do institutions matter? |
| title_sort | too much debt and budget deficit on fiscal sustainability do institutions matter |
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