پرداخت بدهی دولت و بازارهای مالی: برآورد پانل پویا برای اتحادیه پولی اروپا

We assess government solvency in the European Monetary Union (EMU), controlling for the interaction of fiscal policy with financial markets. We find a positive interaction, reflecting market-based pressures for fiscal improvement, and significant debt stabilization efforts, weakened in the post-EMU era.

The debt sustainability condition, which is founded on the government’s Intertemporal Budget Constraint (IBC), excludes the possibility that the government runs Ponzi schemes.1 The intuition is that nobody would be willing to lend a government that is expected to continuously issue new debt in order to finance current interest payments. Hence, lenders’ expectations regarding the fiscal outlook are inherent in the IBC framework, yet they are not considered in the empirical literature. Research mostly examines the factors that influence financial markets’ expectations, such as anticipated debt developments and economic perspectives (Codogno et al., 2003). However, from a reverse causation, financial markets can have an impact on public debt dynamics; first, through the implicit interest rate on government debt, reflecting investors’ requested risk premia. Second, through the impact on economic performance of an “animal spirits” effect.2 Lack of confidence in existing policies could lead to economic cycle fluctuations, hampering the debt to output ratio stabilization effort. Financial markets’ expectations on public debt dynamics are vital for re-financing government liabilities, reflecting the willingness to hold public debt; hence, one expects a discretionary fiscal policy response to such expectations. In this paper, we investigate government solvency in EMU, controlling for fiscal policy interaction with financial markets. We examine whether fiscal policy has been responding to the perceptions of its lenders regarding future debt developments and whether this response has an impact on debt stabilization efforts by enhancing primary surpluses; a positive primary balance response to adverse debt developments is a sufficient condition for fiscal sustainability (Bohn, 1998 and Bohn, 2007).

We find a positive and significant EMU fiscal policy reaction to financial markets’ perceptions regarding debt developments, indicating a market-based pressure for improvement in fiscal balances, as well as a significant debt stabilization effort in EMU over the period 1988–2009. However, this finding stems from the prudent fiscal behavior of the less indebted countries in EMU, whereas high debt countries seem to undertake lower scale, discretionary measures in order to mitigate the increased borrowing costs caused by financial markets’ adverse perceptions on the fiscal outlook. Debt stabilization effort seems to be absent in the post-EMU era, while fiscal policy interaction with financial markets is strengthened. The results point to important policy implications for the role of financial markets in the broader policy mix.