Citation
Baharumshah, Ahmad Zubaidi and Soon, Siew Voon and Lau, Evan
(2017)
Fiscal sustainability in an emerging market economy: when does public debt turn bad?
Journal of Policy Modeling, 39 (1).
99 - 113.
ISSN 0161-8938; ESSN: 1873-8060
Abstract
This paper proposes a Markov-switching model to assess the sustainability of fiscal policy in Malaysia for the period 1980–2014. Our results indicate the policymakers in the past have followed a sustainable fiscal policy, except during the brief periods of economic difficulty. The empirical analysis reveals that the government should cut the deficits only if they exceed a certain level, to ensure their sustainability in the long-run. Specifically, we find that after public debt exceeds a certain threshold level (above 55% of the gross domestic product), it is negatively correlated with economic activity. In addition to the threshold effect, we confirm the presence of a unidirectional causal relation between debt and growth.
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Additional Metadata
| Item Type: | Article |
|---|---|
| Divisions: | Faculty of Economics and Management |
| DOI Number: | https://doi.org/10.1016/j.jpolmod.2016.11.002 |
| Publisher: | Elsevier |
| Keywords: | Endogenous multiple breaks; Fiscal sustainability; Debt; Economic growth |
| Depositing User: | Nurul Ainie Mokhtar |
| Date Deposited: | 26 Feb 2019 03:34 |
| Last Modified: | 26 Feb 2019 03:34 |
| Altmetrics: | http://www.altmetric.com/details.php?domain=psasir.upm.edu.my&doi=10.1016/j.jpolmod.2016.11.002 |
| URI: | http://psasir.upm.edu.my/id/eprint/61893 |
| Statistic Details: | View Download Statistic |
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