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Using a panel of 30 emerging market economies from 1997 to 2007, this paper investigates the determinants of country risk premiums as measured by sovereign bond spreads. Unlike previous studies, the results indicate that both fiscal and political factors matter for credit risk in emerging markets. Lower levels of political risk are associated with tighter spreads, while efforts at fiscal consolidation narrow credit spreads, especially in countries that experienced prior defaults. The composition of fiscal policy matters: spending on public investment contributes to lower spreads as long as the fiscal position remains sustainable and the fiscal deficit does not worsen.

Corporate bonds --- State bonds --- Econometric models. --- Corporates (Bonds) --- Bonds --- Government securities --- Finance: General --- Macroeconomics --- Public Finance --- Debt --- Debt Management --- Sovereign Debt --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- General Financial Markets: General (includes Measurement and Data) --- Fiscal Policy --- Public Administration --- Public Sector Accounting and Audits --- Public finance & taxation --- Finance --- Public debt --- Public investment spending --- Emerging and frontier financial markets --- Fiscal stance --- Fiscal risks --- Fiscal policy --- Debts, Public --- Public investments --- Financial services industry --- United States

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This paper analyzes the experience of 99 advanced and developing economies in restoring fiscal sustainability during 1980 - 2008 after banking crises, which led to large accumulation of public debt. It finds that successful debt reductions have relied chiefly on generation of large primary surpluses in post-crisis years through current expenditure cuts. These savings have been accompanied by growth-promoting measures and a supportive monetary policy stance. While these results are consistent with the existing literature, the paper finds that revenue-raising measures increased the likelihood of successful consolidation in countries that faced large adjustment needs after the crisis. This reflects the fall in effectiveness of spending cuts when deficit reduction needs are large independent of initial tax ratios.

Financial crises. --- Debts, Public. --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Deficit financing --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Banks and Banking --- Financial Risk Management --- Macroeconomics --- Public Finance --- General Financial Markets: Government Policy and Regulation --- Fiscal Policies and Behavior of Economic Agents: General --- National Government Expenditures and Related Policies: General --- Debt Management --- Sovereign Debt --- Fiscal Policy --- Financial Crises --- Finance --- Public finance & taxation --- Economic & financial crises & disasters --- Fiscal consolidation --- Banking crises --- Debt reduction --- Debt management --- Fiscal policy --- Debts, Public --- Financial crises --- Debts, External

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The recent sharp increase in fiscal deficits and government debt in many countries raises questions regarding their impact on long-term sovereign bond yields. While economic theory suggests that this impact is likely to be adverse, empirical results have been less clear cut, have generally ignored nonlinear effects of deficits and debt through some other key determinants of yields, and have been mostly confined to advanced economies. This paper reexamines the impact of fiscal deficits and public debt on long-term interest rates during 1980 - 2008, taking into account a wide range of country-specific factors, for a panel of 31 advanced and emerging market economies. It finds that higher deficits and public debt lead to a significant increase in long-term interest rates, with the precise magnitude dependent on initial fiscal, institutional and other structural conditions, as well as spillovers from global financial markets. Taking into account these factors suggests that large fiscal deficits and public debts are likely to put substantial upward pressures on sovereign bond yields in many advanced economies over the medium term.

At head of title: Fiscal Affairs Department. --- Fiscal policy --- Debts, Public --- Government securities --- Structural adjustment (Economic policy) --- Econometric models. --- Organisation for Economic Co-operation and Development. --- Economic policy --- Government agency securities --- Government bonds --- Public securities --- Treasuries (Securities) --- Treasury bonds --- Bonds --- Securities --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Deficit financing --- Tax policy --- Taxation --- Finance, Public --- Government policy --- OECD --- Organisation for Economic Co-operation and Development --- OESO --- OCDE --- Banks and Banking --- Macroeconomics --- Public Finance --- Interest Rates: Determination, Term Structure, and Effects --- Debt Management --- Sovereign Debt --- Fiscal Policy --- Finance --- Public finance & taxation --- Yield curve --- Government debt management --- Fiscal stance --- Long term interest rates --- Interest rates --- United States

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This paper investigates the political and economic determinants of successful fiscal adjustment in 25 emerging market economies from 1980 to 2001. The results show that large and back-loaded fiscal adjustments have the highest likelihood of success. Fiscal consolidations based on expenditure cuts increase the probability of approaching and achieving fiscal sustainability but are insufficient to maintain it unless accompanied by revenue reforms. Adjustment episodes launched in countries where governments enjoy a parliamentary majority and do not face imminent elections, are found to be more successful. Fiscal consolidations undertaken under IMF-supported programs also have a higher probability of success.

Fiscal policy. --- Fiscal policy --- Debts, Public --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Government policy --- Macroeconomics --- Public Finance --- Duration Analysis --- Fiscal Policies and Behavior of Economic Agents: General --- Fiscal Policy --- Debt --- Debt Management --- Sovereign Debt --- Public finance & taxation --- Fiscal consolidation --- Fiscal stance --- Fiscal sustainability --- Public debt --- Argentina

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Using panel data from 120 developing countries from 1975 to 2000, this paper explores the direct and indirect channels linking social spending, human capital, and growth in a system of equations. The paper finds that both education and health spending have a positive and significant direct impact on the accumulation of education and health capital, and thus can lead to higher economic growth. The paper also finds that other policy interventions, such as improving governance, reducing excessive budget deficits, and taming inflation, can also be helpful in moving countries toward the Millennium Development Goals (MDGs). As such, higher spending alone is not sufficient to achieve the MDGs.

Human capital --- Economic development --- Expenditures, Public --- Appropriations and expenditures --- Government appropriations --- Government expenditures --- Government spending --- Public expenditures --- Public spending --- Spending, Government --- Finance, Public --- Public administration --- Government spending policy --- Human assets --- Human beings --- Human resources --- Capital --- Labor supply --- Econometric models. --- Economic value --- Labor --- Public Finance --- Health: General --- Education: General --- National Government Expenditures and Education --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- National Government Expenditures and Health --- Health economics --- Education --- Public finance & taxation --- Labour --- income economics --- Health --- Education spending --- Health care spending --- Income economics