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A key objective of fiscal policy is to maintain the sustainability of public finances and avoid crises. Remarkably, there is very limited analysis on fiscal crises. This paper presents a new database of fiscal crises covering different country groups, including low-income developing countries (LIDCs) that have been mostly ignored in the past. Countries faced on average two crises since 1970, with the highest frequency in LIDCs and lowest in advanced economies. The data sheds some light on policies and economic dynamics around crises. LIDCs, which are usually seen as more vulnerable to shocks, appear to suffer the least in crisis periods. Surprisingly, advanced economies face greater turbulence (growth declines sharply in the first two years of the crisis), with half of them experiencing economic contractions. Fiscal policy is usually procyclical as countries curtail expenditure growth when economic activity weakens. We also find that the decline in economic growth is magnified if accompanied by a financial crisis.

Fiscal policy. --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Government policy --- Exports and Imports --- Financial Risk Management --- Macroeconomics --- Money and Monetary Policy --- Public Finance --- National Deficit Surplus --- Debt --- Debt Management --- Sovereign Debt --- Fiscal Policy --- Studies of Particular Policy Episodes --- General Outlook and Conditions --- Financial Crises --- International Lending and Debt Problems --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Public finance & taxation --- Economic & financial crises & disasters --- International economics --- Monetary economics --- Public debt --- Financial crises --- Debt default --- Fiscal consolidation --- Credit --- External debt --- Fiscal policy --- Money --- Debts, Public --- Debts, External --- Indonesia

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This paper identifies leading indicators of fiscal crises based on a large sample of countries at different stages of development over 1970-2015. Our results are robust to different methodologies and sample periods. Previous literature on early warning sistems (EWS) for fiscal crises is scarce and based on small samples of advanced and emerging markets, raising doubts about the robustness of the results. Using a larger sample, our analysis shows that both nonfiscal (external and internal imbalances) and fiscal variables help predict crises among advanced and emerging economies. Our models performed well in out-of-sample forecasting and in predicting the most recent crises, a weakness of EWS in general. We also build EWS for low income countries, which had been overlooked in the literature.

Financial crises. --- International economic relations. --- Economic policy --- Economic policy, Foreign --- Economic relations, Foreign --- Economics, International --- Foreign economic policy --- Foreign economic relations --- Interdependence of nations --- International economic policy --- International economics --- New international economic order --- International relations --- Economic sanctions --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- International cooperation. --- Financial Risk Management --- Macroeconomics --- Public Finance --- Production and Operations Management --- Debt --- Debt Management --- Sovereign Debt --- Fiscal Policy --- Studies of Particular Policy Episodes --- General Outlook and Conditions --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Financial Crises --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- National Government Expenditures and Related Policies: General --- Macroeconomics: Production --- Economic & financial crises & disasters --- Economic growth --- Public finance & taxation --- Early warning systems --- Financial crises --- Cyclical indicators --- Expenditure --- Output gap --- Crisis management --- Business cycles --- Expenditures, Public --- Production --- Economic theory