A Modern History of Fiscal Prudence and Profligacy

This post was written by Philip Lane

New IMF work here.

Summary: We draw on a newly collected historical dataset of fiscal variables for a large panel of countries—to our knowledge, the most comprehensive database currently available—to gauge the degree of fiscal prudence or profligacy for each country over the past several decades. Specifically, our dataset consists of fiscal revenues, primary expenditures, the interest bill (and thus both the primary and the overall fiscal deficit), the government debt, and gross domestic product, for 55 countries for up to two hundred years. For the first time, a large cross country historical data set covers both fiscal stocks and flows. Using Bohn’s (1998) approach and other tests for fiscal sustainability, we document how the degree of prudence or profligacy varies significantly over time within individual countries. We find that such variation is driven in part by unexpected changes in potential economic growth and sovereign borrowing costs.

4 Responses to “A Modern History of Fiscal Prudence and Profligacy”

  1. Frank Galton Says:

    Some of the estimate years of profligacy for Ireland (depending on methodology) are during our current period of “austerity.”

  2. Fungus the photo Says:

    The “Confessions of an economic hitman” may be paranoid ravings, although I know of no denials published, or they are an indictment of how fractional reserve banking is inevitably guided into use against entire countries, substituting debt for tangible assets, via weaknesses in highly placed individuals responsible for development.

    I wish to make it clear that I make no accusations against any Irish officials, living or dead.

    The survey may need further work, to show who if anyone then took advantage of the damage wrought by the use of the banking weapon …..

  3. seafóid Says:

    Fiscal profligacy often follows banking disasters

    and look at Morgan Stanley today

    http://dealbook.nytimes.com/2013/01/09/deep-cuts-raise-questions-about-morgan-stanley/?hp

  4. Michael Hennigan - Finfacts Says:

    Although the advanced economies are measured to be generally fiscally prudent during most of their histories, the first era of global finance (pre-WWI) and the 1990s are found to be especially prudent times, whereas the mid-1970s represents a departure from prudence.

    This is a little underwhelming.

    Gordon Brown used to do a lot of flirting with Ms Prudence and for a while the end of ‘Tory boom and bust’ seemed credible until it wasn’t.

    Mid 1970s — a departure from prudence?

    After OPEC quadruped oil prices in 1974 on top of an existing commodity price boom, inflation hit 21% in Ireland in 1975. The data shows governments suddenly switched from prudence to profligacy.

    It’s a reverse story in the 1990s: falling manufacturing prices thanks to China; declining inflation and interest rates; a tech boom and voilà: surging tax revenues before the pols could get around to ramping up spending!

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